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Salary Sacrificing

Salary Sacrificing – Make Your Pay Go Further

Salary sacrificing (also known as salary packaging or total remuneration packaging.) is when you organise your salary with your employer to include benefits and income. This strategy can be an effective benefit that allows you to enjoy your money before it is taxed.

Anything to do with tax tends to seem complex at first but can soon be untangled and explained. As an employee, you are due an income from your employer. Before this is done, your employer will need to take out income tax, and what is left will be put into your bank account. However, when you decide to salary package, your employer will give you your same salary, but you will opt to pay for certain expenses that you have decided on with your employer before tax is taken. Using this strategy can potentially save you tax dollars, increasing your savings and money to use on the things you want to spend it on.

How Salary Sacrificing Works

calculate your salary sacrifice

We have established that salary sacrificing is when you swap out more income after tax for paying for specific benefits from your pre-tax income. What does this look like though?

You might have an income of $120,000. Out of that total income, you might arrange with your employer to receive $90K as money in the bank, with the other $30K to put towards your car, paid as a benefit. This will take your taxable income from $120K down to $90K.

Salary packaging can only be arranged before you are paid, as it cannot be packaged after it is earned. This ATO approved option is beneficial to those with middle to high incomes, but you will want to consult with your financial planner to decide whether salary sacrifice is beneficial to your individual scenario.

What Can I Package Into My Salary?

Salary Sacrifice a car

The options for salary packaging are vast and varied and depend mainly on the industry you work in, your own situation and your employer. The most obvious choices for a full remuneration package are mobile phone or device for work, car repayments, home payments (mortgage or rental), utilities. It is worth considering your everyday expenses that you would normally pay with your after-tax income and asking your employer what they offer. Salary package benefits can fall into three groups: super, fringe benefits and exempt benefits.

Fringe benefits include health insurance, school fees, car loans and childcare, while exempt benefits can range from computer software and devices to trade tools and protective gear. These will not be subject to fringe benefits tax for your employer.

Super And Carry-Forward Contributions

Paying a portion of your pre-tax salary into super can help both you and your employer. The contributions will be taxed at 15% by your super fund, just like your employer’s contributions. For many, this is lower than their marginal tax rate.

Another strategy to consider within salary packaging, is carry-forward contributions. These basically allow any super fund member to access any of their unused concessional contributions cap from the past on a rolling basis, to a total of five years. If you do not use the full amount of your concessional contributions cap, which is $27,500 in 2021-22, you are able to bring forwards any unused amount to make the most of up to five years later. To utilise your unused cap amounts you will need to meet two conditions:

  • Your total super balance at the end of 30 June of the previous financial year needs to be less than $500,000.
  • You need to have made concessional contributions in the financial year that exceeded your general concessional contributions cap.


Sophie’s concessional contributions cap is $25,000 per year. Because Sophie and her employer have been making smaller contributions each year (less than her $25,000 cap) she has accumulated unused caps she can access for up to 5 years. She was not able to make additional contributions until 2021–22 but there are rules that determine what she can contribute.


Contributions from Sophie and her employer Total super balance at end of previous financial year Unused concessional cap accumulation Sophie’s options
2018–19 $5,000 super guarantee (SG) $480,000 and growing $25,000
− $5,000
= $20,000
Sophie has no money to contribute
2019–20 $3,000 SG $490,000 and growing $20,000
+ $22,000
− $3,000)
= $42,000
Sophie has no money to contribute
2020–21 $0 $505,000 $42,000
+ $25,000
= $67,000
Sophie has money to contribute but can’t carry-forward the unused cap amount because her total super balance is over $500,000
2021–22 $10,000 SG
+ $20,000 salary sacrifice
+ $15,000 personal contributions
= $45,000
Fund experiences negative earnings leading to a decline in Sophie’s total super balance
+ $27,500
= $94,500
Sophie has money to contribute. Because her total super balance at 30 June 2021 is now less than $500,000, she can use the unused cap amounts and contribute up to $94,500

Carry-forward concessional contributions – Sophie (Source: ATO)

The point of carry-forward contributions is to make things easier for those that have irregular or interrupted work patterns, to allow them to contribute to their retirement and make the most of tax concessions available to them. There are a lot of individuals with nonstandard work patterns or irregular income, including those who take time off to care for children or family, part time workers, or workers taking time off to focus on studying. Before-tax contributions are only taxed at 15% as they hit your super account, instead of your marginal tax rate, which could be up to 47% including the Medicare levy. Anything you earn on those contributions once they are in your super account are also taxed at only 15%. Being able to make extra concessional contributions allows these individuals to make the most of their contributions and grow their retirement fund in amongst times of interrupted work and pay.

Speaking to a financial planner that specialises in salary packaging can help you to feel confident in making the most of your income, while minimising tax. For expert financial advice from an award winning team get in contact with Elliot Watson Financial Planning 02 4038 1623.


The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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