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) and health promotion charities — Registered charities such as community services and disability organisations, endorsed by the ATO. FBT-exempt cap: $30,000 grossed-up per employee per FBT year, which covers about $15,900 of rent, mortgage or other GST-free expenses
- Public and not-for-profit hospitals and public ambulance services — FBT-exempt cap: $17,000 grossed-up, which covers about $9,010 of GST-free expenses. An organisation that is both a PBI and a hospital uses the hospital cap
- Rebatable employers — Certain registered charities and other non-government not-for-profit organisations. They get a 47% FBT rebate, not an exemption, on up to $30,000 grossed-up per employee, so FBT is reduced rather than removed
- Private sector employers — Salary packaging limited to super, novated leases (with FBT unless EV), and portable devices
Exempt and rebatable employers can also offer a separate $5,000 grossed-up cap for salary-packaged meal entertainment and entertainment facility leasing expenses, on top of the general cap.
Every one of these caps is a grossed-up value, not the amount of expenses you can package. For GST-free expenses such as rent and mortgage repayments, the grossed-up value is the amount packaged multiplied by the type 2 gross-up rate of 1.8868, which is why a $30,000 cap buys about $15,900 and a $17,000 cap about $9,010. Where your employer can claim GST credits on a benefit, the higher type 1 rate of 2.0802 applies and the cap covers less. The caps are per employee per FBT year and are not reduced if you only work part of the year.
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 (about $15,900 or $9,010)
Employees of PBIs and health promotion charities can salary package about $15,900 of everyday living expenses per FBT year (1 April to 31 March) free of FBT. Employees of public and not-for-profit hospitals and public ambulance services can package about $9,010. Commonly packaged expenses include:
- Rent or mortgage repayments
- Grocery and household bills
- Personal loan repayments
- Credit card payments
- School fees and childcare costs
- Health insurance premiums
On a $80,000 salary at FY2026-27 rates, packaging the full PBI amount leaves you about $5,126 a year better off, and the full hospital amount about $2,883. On $150,000 (a 37% marginal rate before packaging) the figures rise to about $6,138 and $3,514. These are before any fee your packaging provider charges.
Meal Entertainment (separate $5,000 grossed-up cap)
Employees of PBIs, health promotion charities, public and not-for-profit hospitals, public ambulance services and rebatable employers can also package meal entertainment and entertainment facility leasing expenses up to a separate $5,000 grossed-up cap on top of the general cap. In face value that is about $2,650 of meals where the employer does not claim GST credits (type 2 gross-up), or about $2,404 where it does (type 1). The widely quoted "$2,650" is the first of these, not the cap itself. Qualifying expenses include:
- Restaurant and cafe meals, and food and drink provided as entertainment
- Catering for social events
- Accommodation or travel connected with that entertainment
- Hire of a venue or facility for entertainment (entertainment facility leasing)
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.
Model Your Salary Package
See how salary sacrifice into super affects your take-home pay, tax, and long-term wealth at your exact salary level.
Use our Salary Sacrifice CalculatorHow Salary Packaging Affects Your Pay
The worked example below compares two employees earning $80,000 on FY2026-27 tax rates: one at a PBI who packages the full $15,900 of rent or mortgage covered by the $30,000 grossed-up cap, and one at a public hospital who packages the full $9,010 covered by the $17,000 cap. Meal entertainment is left out.
| Component | Without packaging | PBI employee ($15,900) | Public hospital employee ($9,010) |
|---|---|---|---|
| Gross salary | $80,000 | $80,000 | $80,000 |
| Packaged living expenses (pre-tax) | $0 | $15,900 | $9,010 |
| Taxable income | $80,000 | $64,100 | $70,990 |
| Income tax and Medicare levy | $16,120 | $10,994 | $13,237 |
| Cash in hand (taxable income − tax) | $63,880 | $53,106 | $57,753 |
| Total to spend (cash + packaged expenses) | $63,880 | $69,006 | $66,763 |
The PBI employee ends up with $5,126 more to spend each year and the public hospital employee $2,883 more, because the packaged amount pays for expenses they would otherwise have paid from after-tax income. The PBI saving is larger because its cap is larger, not because the tax treatment differs. Both figures are before packaging provider fees, and the PBI figure includes the small low income tax offset that applies once taxable income falls to $64,100.
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) for Family Tax Benefit, Child Care Subsidy and Parental Leave Pay. RFBA from a PBI, health promotion charity, public or not-for-profit hospital or public ambulance service is counted at 53% (1 minus the FBT rate), which strips out the gross-up. See our Centrelink Income Test Guide
- HECS-HELP repayments — The ATO includes the full 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 to singles with MLS income over $105,000 in FY2026-27 who don't hold private hospital cover
- Child support assessments — The Child Support Agency includes RFBA in adjusted taxable income
The RFBA is always grossed up at the type 2 rate (1.8868), so it is close to the cap, not to what you spent. A PBI employee who packages $15,900 of rent has an RFBA of about $30,000; a public hospital employee who packages $9,010 has an RFBA of about $17,000. This amount appears on your income statement but does not increase the tax you owe — it only affects the income tests listed above.
Frequently Asked Questions
How this calculator works▼
FBT capping thresholds are from the ATO's "Fringe benefits tax — rates and thresholds" (Table 5, unchanged for the FBT years ending 31 March 2023 to 31 March 2027) and chapter 6 of the ATO's FBT guide for employers, checked 23 September 2026. The caps are grossed-up values; face-value figures divide them by the type 2 gross-up rate (1.8868), or the type 1 rate (2.0802) where stated. The worked example uses FY2026-27 resident tax rates, the low income tax offset and the 2% Medicare levy from the site's shared tax engine, and ignores packaging provider fees. NFP packaging caps are per FBT year (1 April to 31 March), not per financial year.
Sources & References
- 1Fringe benefits tax — rates and thresholds (Table 5: capping thresholds)— Australian Taxation Office
- 2Fringe benefits tax — a guide for employers, ch 6.3–6.5 (capping, salary packaged entertainment)— Australian Taxation Office
- 3Salary sacrificing for employees— Australian Taxation Office
- 4Reportable fringe benefits for employees— Australian Taxation Office
- 5Family Assistance Guide 3.2.3 — adjusted fringe benefits total— Department of Social Services
Last verified: 9 October 2026. Our content is based on the latest information from official Australian government sources.
Anita Bell
AuthorFounder & Senior Bookkeeper
Accountancy degree (2015); certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One
Anita Bell earned her accountancy degree in 2015 and has worked as a senior bookkeeper with Prime Bookkeeping for over 5 years. This built her skills in Australian and New Zealand tax legislation and industry regulations. She is certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One, and works with payroll and rostering software including Gusto, Deputy, Tsheets and KeyPay. She has strong experience in hospitality, building and construction, financial services, real estate, ecommerce, and medical and health services.
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