Salary sacrificing explained: How it can help with those big purchases

If your employer agrees to help you out, could salary sacrificing help you save money on living expenses?

If your employer agrees to help you out, could salary sacrificing help you save money on living expenses?

Employees on the brink of another rate rise in search of ways to save will be contemplating salary sacrificing as a potential option.

Salary sacrificing is a formal agreement between your employer and yourself whereby you agree to forego part of your salary or wages in return for benefits of a similar value, such as more superannuation or a to buy a car, according to the Australian Taxation Office.

The arrangement can provide any type of benefit, such as salary sacrificing for a car, goods or shares. The important thing is that these benefits form part of your remuneration, and that the benefit you receive replaces what you would otherwise receive as salary.

According to the ATO, other benefits you can salary sacrifice include making voluntary contributions towards your HECS debt through salary sacrificing, meaning you can repay the debt without paying tax on it as earnings.

You could even salary sacrifice private health insurance premiums if you work in the hospital system, a charity or not-for-profit organisation or private school and your employer offers this as part of your workplace benefits program. Definitely a good incentive to check your work contract.

You can also salary sacrifice to cover:

  • School fees and childcare costs
  • Living expenses and relocation costs
  • Professional memberships
  • Tools of the trade and work equipment
  • Portable electronic devices
  • Loan repayments
  • Education debt


Leaselab co-founder Alex Davis says salary sacrificing to get into a car, also known as a novated lease, is growing in popularity as more Australians look for tax breaks amid cost-of-living pressures.

“The uptake of novated leasing has boomed in recent years as more people realise how much money it can put back into their pockets, and how easy the process is,” he says.

For many, cars are a non-negotiable expense. Novated leases help change car ownership from a liability to something that can actually benefit drivers financially. When you can compare the costs to traditional finance, the savings can be in the thousands of dollars, Davis says.

To put that in perspective, if a person in the current tax year earned $120,000, they would pay around $31,867 in tax, leaving them with $88,133 in their pocket.

If they leased a new Tesla Model 3 that retails for $67,400 through a novated lease, they could instantly remove GST payable on the vehicle and reduce their personal income tax bill to potentially create over $9,000 in savings per year. Their total tax savings could be more than $45,000 over the course of a five year lease, he says.

Greater savings are available on electric vehicles under the luxury car threshold of $89,332 in 2023/24 because they are exempt from the 47 per cent Fringe Benefits Tax, which means the entire lease and running costs can be deducted from a person’s pre-tax salary.

“Price has historically been a barrier for many people to get into an electric vehicle, so it’s not surprising that so many have turned to novated leases to make EV ownership more attainable,” Davis says.

“We’ve seen many people drawn to novated leases for the added benefit of bundling all their car expenses into one regular payment, so they don’t get bill shock when their service is due or their registration is up for renewal,” Davis says.


Salary sacrificing into super is where you choose to have some of your before-tax income paid into your super fund by your employer. This is on top of the 11 per cent that your employer is already contributing on your behalf.

Under the arrangement, the employee pays less income tax on their reduced salary or wages. Salary sacrificed super contributions are classified as employer super contributions that are taxed in the super fund, rather than being employee super contributions from after-tax income.

Bear in mind that you can’t contribute more than $27,500 a year under the current concessional super contributions cap, otherwise penalties will apply. Make sure you speak to a financial advisor to ensure this arrangement works well for you.

Who does it work best for?

Salary sacrificing is usually more effective for people on middle to higher incomes, according to ASIC’s Moneysmart site. However, generally, Moneysmart points out that salary sacrificing super can be tax-effective if you earn more than $37,000 per year.

The amount you salary sacrifice into super is generally taxed at 15 per cent, which for most people will be less than the tax they pay on the income if it was paid to you as a salary.

This means you will be able to reduce your taxable income as you’ll essentially be taking home less money.

The benefit is that you’re saving money towards your retirement without having to do anything. Of course, once the money is in your superannuation fund, it’s generally there until you retire.

Start by asking your employer if they offer salary sacrificing, and what’s included.

To enter into this agreement, there needs to be a written agreement between you and your employer, bearing in mind that you can renegotiate a salary sacrifice arrangement down the track.

The cons

But financial adviser Jeremy Britton warns that while salary sacrificing allows you to save on your income tax, you need to weigh up the financial pros and cons.

For example, the value of the car drops by 30 per cent the moment you drive it out of the caryard, then you may be saving 10 per cent and losing much more. Instead, consider buying a car that might be two or three years old for a significantly lower price, he says.

“Salary sacrifice is best suited to investments like superannuation, stocks, shares, property, crypto and things that increase in value over time, not for vehicles that invariably go down in value.”

Employees should always consider the longer-term outcome of their plan in three to five years, not just look at the immediate tax savings, and make sure they seek the advice of a qualified professional.

Britton would prefer to see people salary sacrifice to put additional funds into their superannuation to invest tax effectively for long-term gains.

“You also save on tax, your investment balance increases over time rather than going down in value like a car, and gains in super are taxed much lower than outside the superannuation system,” he says.

For example, someone on $80,000 per annum can salary sacrifice 10 per cent or around $150 a week to super. After tax savings, they would bring home around $57,000. A peer on the same $80,000 who did post-contributions instead of salary sacrifice would only bring home $54,000, he explains.

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