Evidence-backed. Sourced from the ATO, BDO, Grant Thornton, Maxxia, Treasury and independent salary-packaging providers. General information only — not financial or tax advice. Salary packaging rules are changing — always verify with your employer, packaging provider, or a registered tax agent before entering an arrangement. Last updated: June 2026.
⚡ Key Takeaways
- Salary packaging lets you redirect part of your pre-tax salary into benefits — you’re taxed on a lower cash salary, which can significantly cut your income tax. [4]
- Employees of eligible charities, aged-care and disability providers can package up to $15,900 per year of general living expenses (rent, mortgage, school fees) completely FBT-free — one of the biggest legal tax perks in Australia. [7][3]
- Staff of public hospitals and ambulance services get a $9,010 cap, plus up to $2,650 in meal/entertainment benefits FBT-free. [7][3]
- A $60,000 NFP worker packaging $15,900 of rent reduces their taxable income to $44,100 — potentially dropping a tax bracket and keeping more of every dollar. [3]
- BDO warns of “an unexpected FBT sting” from 1 April 2027: packaging laptops, phones, tools and general work expenses will likely lose FBT exemption, and BDO predicts the “demise of salary packaging work-related expenses.” [1]
- Core arrangements — NFP living expense caps, novated leases, extra super — are NOT affected by the 2026 Budget. Maxxia confirms: “you can continue with your salary packaging as normal.” [14]
Salary Packaging 101: How to Legally Slash Your Tax Bill in 2026
By The Fine Print editorial team | Last updated: June 2026 | 11 min read | ⚠️ Not financial advice
Salary packaging is one of the clearest examples of how the tax system quietly picks winners — not by giving everyone the same rules, but by giving extra tax-free income to people who work for the right employers and know how to play the game. In 2026, the game is changing: work-expense packaging tricks are on borrowed time, but the big caps for charities and hospitals are very much alive. If you’re in the right sector and not using this, you’re leaving real money behind.📋 What’s in This Guide
What Salary Packaging Actually Is
The ATO defines salary sacrificing — also called salary packaging — as an arrangement where you agree to give up part of your future before-tax salary in return for your employer providing benefits of similar value. You’re then taxed on your reduced cash salary, while the packaged benefits are taxed (or exempt) under the Fringe Benefits Tax (FBT) rules — potentially cutting your overall tax bill. [4]Common benefits you can package in 2026 include additional superannuation contributions (always FBT-exempt), a novated lease on a car, general household expenses for eligible NFP workers (rent, mortgage, credit card payments, school fees), meal and entertainment benefits for some sectors, and certain work-related items like laptops, phones and tools of trade — although this last category is facing major changes from 2027. [6][10][5][4]Who Benefits the Most — and the Special NFP Caps
Salary packaging is available to many employees, but it is dramatically more generous for workers at charities, public hospitals, disability and aged-care providers, who access FBT-exempt caps that private-sector workers simply don’t get. [3][6][7]FBT is normally levied at 47% on the grossed-up value of fringe benefits — which would make most benefits unattractive. The FBT-exempt caps change everything for eligible NFP workers. [6]💡 The FBT-free caps in 2026
- Eligible charities, aged-care, disability and similar NFPs: up to $15,900 per FBT year of general living expenses — rent, mortgage repayments, credit card bills, school fees — completely FBT-free. [7][3]
- Public hospitals and ambulance services: up to $9,010 per FBT year of general living expenses FBT-free. [7][3]
- Meal and entertainment benefits: on top of the above, many eligible employees can package up to $2,650 per FBT year of meal and entertainment costs (restaurant meals, venue hire, some holiday accommodation) FBT-free. [3][7]
How Much Tax Can Salary Packaging Actually Save?
GO Salary’s worked example shows the numbers clearly: an employee on $60,000 who salary packages $15,900 of rent reduces their taxable income to $44,100. That can push them into a lower tax bracket, meaning they pay less income tax while receiving the same gross salary. The packaged rent payment is still covering the same rent — it’s just coming out pre-tax rather than post-tax. [3]Providers like Smart, Maxxia and SalaryPackagingPLUS say packaging can boost take-home pay by “thousands each year” for eligible employees — the exact amount depends on salary level and benefit mix. [11][10][8]💡 Note: the 1 July 2024 tax cuts changed the breakeven point. Grant Thornton reports that for rebateable employers (those getting an FBT rebate rather than full exemption), packaging only becomes meaningfully tax-effective once earnings are above about $135,000 — up from $120,000 under the old tax scales. Employees at these rebateable-employer organisations should recalculate whether their existing arrangements still make sense. [2]
The Downsides and Traps to Know
Used badly, salary packaging can leave you worse off. Getting it wrong can: accidentally trigger FBT for your employer, who may then pass the cost back to you; lock too much of your salary into packaged benefits, reducing your available cashflow; and affect income-tested government benefits — HECS repayments, family tax benefits — because some packaged amounts still count as reportable fringe benefits income that affects those thresholds. [4][2][6]The rules are complex: different caps, different FBT treatments, and different eligible benefits depending on your employer type, income level, state and benefit mix. This complexity means the best tax savings are disproportionately available to people whose employers use specialist providers and HR teams — largely public-sector and large NFPs — while small businesses and ordinary PAYG workers see far less benefit. [10][6][4]⚠️ Before signing anything: use your provider’s calculator to compare net pay now (after tax, without packaging) vs net pay with packaging (after tax, FBT implications and all admin fees). If the numbers don’t show a clear, recurring net benefit, don’t sign. Packaging should function as a pay rise — not a pay cut with extra paperwork. [10][5][2]
The Big 2027 Change: The “Demise” of Work-Expense Packaging
Treasury’s standard deduction proposal — a $1,000 flat work-expense deduction from 1 July 2026 — comes packaged with FBT law changes that BDO describes as “an unexpected FBT sting.” These changes apply from 1 April 2027. [13][1]Under the draft provisions, employers will no longer be able to reduce the FBT taxable value of salary-sacrificed benefits that relate to expenses covered by the $1,000 standard work-expense deduction. The “otherwise deductible rule” — which currently lets employers package many work items without FBT arising — will no longer apply to these benefits. The result: FBT will now arise for the employer, making the arrangements unattractive to offer. [1]Several currently FBT-exempt salary-sacrificed items will lose their FBT exemption when packaged from 1 April 2027 (unless another concession applies): laptops and computers, mobile phones, tablets, computer software, protective clothing, briefcases, and tools of trade. [1]BDO’s conclusion: these changes will likely “lead to the demise of salary packaging work-related expenses” from 2027, because employers won’t want to wear the FBT cost and will force employees to exit these arrangements. [1]💡 What is NOT affected: The 2026–27 Budget did not remove core salary-packaging arrangements or novated leases. Maxxia’s Budget 2026 update tells clients: “There is nothing you need to do; you can continue with your salary packaging and novated leasing as normal” — but with an eye on the 2027 FBT changes for work-expense items. The NFP living-expense caps ($15,900 and $9,010) remain in full force. [14][1]
✅ Three Concrete Actions for 2026
Action 1: Check if your employer type unlocks the big tax-free caps
Ask HR or payroll what kind of employer you work for — charity, public hospital, disability provider, government, private sector — and which salary-packaging caps apply. If you’re in an eligible NFP or hospital role, find out whether you’re using up to $15,900 (or $9,010 for hospitals) of general living expenses, and up to $2,650 of meal and entertainment, each FBT year. If you aren’t in those sectors, focus on extra super and car packaging, and run the numbers to confirm whether the tax saving is worth any added FBT and administration costs. [6][7][3][2][4]Action 2: Use 2026–27 to pivot away from packaging work-related expenses
If you currently salary-sacrifice phones, laptops, tools or general work expenses, talk to your HR team or packaging provider about the FBT changes from 1 April 2027 linked to the $1,000 standard deduction. Plan to wind down or restructure those arrangements before the FBT changes take effect — and instead rely on either claiming the standard $1,000 deduction directly, or itemising genuine work expenses in your tax return where still allowed. [13][1][15]Action 3: Run a simple pay-packet comparison before signing anything new
Before entering any new packaging arrangement, use your provider’s calculator or a spreadsheet to compare net pay now (after tax, without packaging) versus net pay with packaging (after tax, including FBT implications and all admin fees). Make sure you understand: whether any packaged amounts will show up as reportable fringe benefits (which affect HECS repayments and family tax benefits); what happens if you leave your job or change hours; and whether your employer passes any FBT cost on to you. If the numbers don’t give a clear, recurring net benefit after fees and FBT, don’t sign. [10][5][2][4][6]❓ Frequently Asked Questions
What is salary packaging in Australia?
An arrangement where you give up pre-tax salary for employer-provided benefits (super, car, living expenses for NFP workers), reducing your taxable income. Benefits are taxed under FBT rules — or exempt under the special NFP caps. [4][5]How much can NFP workers package tax-free?
Eligible charity/aged-care/disability workers: up to $15,900/year of general living expenses FBT-free. Public hospital/ambulance staff: up to $9,010. Plus up to $2,650 meal and entertainment benefits FBT-free for many eligible employees. [7][3]Is salary packaging changing in 2027?
Yes — for work-expense packaging. From 1 April 2027, FBT exemptions for salary-sacrificed laptops, phones, tools and general work items are being removed, linked to the $1,000 standard deduction. BDO predicts the “demise” of work-expense packaging. NFP living-expense caps and novated leases are unaffected. [1][13]Does salary packaging affect HECS or family tax benefits?
Yes. Some packaged amounts are reported as reportable fringe benefits income, which counts towards the thresholds for HECS repayment rates and family tax benefit eligibility — even though no extra cash changes hands. Always check this before entering any arrangement. [4][6]⚖️ The Fine Print Verdict
Salary packaging is one of the clearest examples of how the tax system quietly picks winners — not by giving everyone the same rules, but by giving extra tax-free income to people who work for the right employers and know how to play the game. In 2026, the game is changing: the work-expense rorts are dying, but the big caps for charities and hospitals are very much alive. If you’re an NFP or hospital worker not using your $15,900 cap, you’re leaving thousands on the table every year. If you’re packaging laptops and tools at a private-sector job, get advice before April 2027 arrives.
👉 Check your employer type. Find out your cap. Run the numbers. If the benefit is real and recurring — use it.
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- BDO, “The demise of salary packaging for work-related expenses,” 2026. bdo.com.au/en-au/insights/budget/2026/the-demise-of-salary-packaging-for-work-related-expenses
- Grant Thornton, “Tax cuts and salary packaging post-1 July 2024,” 2024. grantthornton.com.au/insights/client-alerts/tax-cuts-and-salary-packaging-post-1-july-2024/
- GO Salary, “How salary packaging saves you income tax as an employee,” 2026. gosalary.com.au
- ATO, “Salary sacrificing for employees,” ato.gov.au
- TaxEffective, “Pay less tax — salary packaging,” taxeffective.com.au
- Maxxia, “Salary packaging benefits,” maxxia.com.au/salary-packaging/benefits
- InLife, “What is salary packaging?” inlife.org.au/join-our-team/what-is-salary-packaging
- SalaryPackagingPLUS, salarypackagingplus.com.au
- University of Queensland, “Salary packaging,” staff.uq.edu.au
- FAA, “Salary packaging in Australia,” faa.net.au/articles/salary-packaging-in-australia/
- Smart, “Salary packaging,” smart.com.au
- CBB, “About salary packaging,” cbb.com.au/salary-packaging/about-salary-packaging/
- Treasury, “Standard deduction exposure draft — consultation,” consult.treasury.gov.au/c2026-757530
- Maxxia, “Federal Budget 2026 — what it means for salary packaging and novated leasing,” maxxia.com.au/news/salary-packaging/federal-budget-2026-what-it-means-for-salary-packaging-and-novated-leasing
- ATO, “Overview of key changes — Tax Time 2025–26,” ato.gov.au
This article is general information only and does not constitute financial or tax advice. Salary packaging rules are changing — always verify your arrangements with your employer, packaging provider, or a registered tax agent before entering or continuing any arrangement. The Fine Print 🇦🇺 is not affiliated with the ATO or any salary-packaging provider.