Salary Packaging Guide — Benefits Beyond Novated Leases

What Is Salary Packaging?

Salary packaging is an arrangement where your employer pays for certain expenses or benefits from your pre-tax salary, reducing your taxable income. While the terms "salary packaging" and "salary sacrifice" are often used interchangeably, salary packaging is the broader concept — it covers all pre-tax benefits including living expenses, meal entertainment, novated leases, portable devices, and superannuation contributions.

Salary sacrifice specifically refers to redirecting pre-tax salary into superannuation. Salary packaging encompasses the full range of benefits an employer can provide from pre-tax earnings. The distinction matters because different benefits have different FBT treatment, caps, and eligibility rules.

In the private sector, salary packaging options are generally limited to superannuation, novated leases, and portable electronic devices. The real power of salary packaging emerges in the not-for-profit (NFP) and public hospital sectors, where special FBT exemptions allow employees to package everyday living expenses tax-free.

Who Can Access Salary Packaging?

All employees can access some form of salary packaging, but the range and value of benefits varies dramatically by employer type. The ATO classifies employers into categories that determine FBT exemptions:

• Public benevolent institutions (PBIs) — Charities, community services, disability organisations. FBT-exempt cap: $15,900 per FBT year
• Public and not-for-profit hospitals — Public hospitals, private NFP hospitals. FBT-exempt cap: $15,900 plus an additional $2,650 for meal entertainment
• Health promotion charities — Organisations registered with the ACNC promoting health. FBT-exempt cap: $15,900
• Private sector employers — Salary packaging limited to super, novated leases (with FBT unless EV), and portable devices

The $15,900 cap is calculated on the grossed-up taxable value of the benefits, not the face value. For most living expenses without GST (rent, mortgage), the grossed-up value equals the face value. For items with GST, the grossed-up value is higher, meaning the effective packaging amount is slightly less than $15,900.

FBT-Exempt Benefits

The following salary packaging benefits are exempt from Fringe Benefits Tax, making them the most tax-effective options available:

NFP Living Expenses ($15,900 Cap)

Employees of PBIs and public hospitals can salary package everyday living expenses up to $15,900 per FBT year (1 April to 31 March). Eligible expenses include:

• Rent or mortgage repayments
• Grocery and household bills
• Personal loan repayments
• Credit card payments
• School fees and childcare costs
• Health insurance premiums

At a marginal tax rate of 30%, packaging the full $15,900 saves approximately $4,770 in income tax annually. At the 37% bracket, the saving rises to $5,883.

Meal Entertainment ($2,650 Cap)

Public hospital and certain NFP employees can package meal entertainment expenses up to $2,650 (grossed-up value) on top of the $15,900 living expenses cap. Qualifying meal entertainment includes:

• Restaurant meals and takeaway food
• Catering for social events
• Food and drink consumed at entertainment venues
• Holiday accommodation that includes meals

The meal entertainment benefit does not cover regular grocery shopping or work lunches eaten alone at your desk. The expense must have an entertainment or social component.

Portable Electronic Devices

All employees — regardless of employer type — can salary package one portable electronic device per category per FBT year when the device is used primarily for work. Eligible categories include:

• Laptop or notebook computer
• Tablet device
• Mobile phone
• GPS navigation device
• Portable printer

A $2,000 laptop packaged at the 30% marginal rate saves $600 in income tax. The device must be used primarily (more than 50%) for employment duties.

Self-Education Expenses

Employer-provided education that is sufficiently connected to the employee's current role is an exempt benefit. This includes course fees, textbooks, and related travel for work-related education. The education must maintain or improve skills required in the employee's current employment — courses for a completely new career direction do not qualify.

How Salary Packaging Affects Your Pay

The following worked example demonstrates the impact of salary packaging for an NFP employee earning $80,000 who packages the full $15,900 living expenses cap:

The employee saves $4,770 in income tax by packaging $15,900 of living expenses. The packaged amount pays for expenses the employee would have paid from after-tax income anyway — rent, mortgage, groceries — so the full tax saving flows directly to the bottom line. Over a 10-year career in the NFP sector, this totals $47,700 in cumulative tax savings.

RFBA Reporting — How It Affects Other Obligations

When you salary package benefits (other than super), your employer reports the grossed-up taxable value as a Reportable Fringe Benefits Amount (RFBA) on your income statement. While RFBA does not increase your income tax, it is added back for the following means-tested calculations:

• Centrelink income tests — Services Australia adds RFBA to your adjusted taxable income (ATI) when assessing eligibility for Family Tax Benefit, childcare subsidies, and other payments. See our Centrelink Income Test Guide
• HECS-HELP repayments — The ATO includes RFBA in Repayment Income, potentially pushing you above a repayment threshold
• Medicare Levy Surcharge — RFBA is included in the income test for the MLS, which applies if you earn over $93,000 (single) without private hospital cover
• Child support assessments — The Child Support Agency includes RFBA in adjusted taxable income

For an employee packaging the full $15,900, the RFBA reported is $15,900 (for Type 2 benefits without GST, like rent/mortgage). This amount appears on your income statement and payment summary but does not increase the tax you owe — it only affects the means-tested obligations listed above.

Related Resources

• Salary Sacrifice Calculator — Model the tax impact of sacrificing into super
• Salary Sacrifice Guide — Deep dive into salary sacrifice into superannuation
• Novated Lease Guide — Compare EV and ICE novated lease structures
• Fringe Benefits Tax Guide — Full FBT rates, exemptions, and employer obligations
• Centrelink Income Test — How adjusted taxable income affects government payments

Frequently Asked Questions