The Risks of Salary Sacrifice: What You Need to Know

Salary sacrifice (also known as salary packaging) is often promoted as a "no-brainer" way to save on tax. By paying for benefits like superannuation or a car lease with pre-tax dollars, you reduce your taxable income and keep more in your pocket. However, as the old saying goes, there is no such thing as a free lunch. Without proper guidance, these arrangements can trigger unexpected tax bills or impact your lifestyle.

Before you commit to a new arrangement, here are the critical risks you need to consider for the 2026 financial year.

1. Reduced Borrowing and Spending Power

The most immediate risk is the reduction in your take-home pay. While you are saving on tax, you have less liquid cash in your bank account for daily expenses or emergencies.

The Loan Trap: When applying for a mortgage or personal loan, banks often look at your net "take-home" pay. A heavy salary sacrifice arrangement can make your income look lower than it is, potentially reducing the amount a bank is willing to lend you.

2. Exceeding Concessional Contribution Caps

If you are salary sacrificing into super, these amounts are counted as "concessional contributions". For the 2025-2026 year, the annual cap is $30,000.

• The Risk: This $30,000 limit includes the mandatory Super Guarantee (SG) your employer already pays. If your combined contributions exceed this cap, you may be hit with additional tax at your marginal rate, effectively canceling out the benefit of the sacrifice.

3. Fringe Benefits Tax (FBT) Liabilities

When you sacrifice salary for non-cash benefits like a car or laptop, your employer may be liable for Fringe Benefits Tax (FBT). In many agreements, the employer will "pass on" this FBT cost to you.

If the benefit is not structured correctly—for example, a novated lease where the vehicle is not used as expected—the FBT could end up costing you more than the income tax you initially saved.

4. Impact on Government Benefits and HECS/HELP

Even though salary sacrifice lowers your "taxable income," many government agencies use your "reportable fringe benefits" or "adjusted taxable income" to calculate entitlements.

Hidden Costs: A salary sacrifice arrangement could unintentionally increase your HECS/HELP debt repayments, reduce your Child Support entitlements, or push you over the threshold for the Medicare Levy Surcharge.

5. The "Payday Super" Compliance Shift

Starting 1 July 2026, the new "Payday Super" rules require employers to pay super contributions within seven business days of payday. For employers, this means salary sacrifice must be tracked and paid with much higher frequency than the old quarterly system.

Employer Risk: Informal or verbal agreements are a major compliance risk. If the paperwork isn't perfect, the ATO may view these payments as standard wages, leading to underpayment claims or penalties.

Summary

While salary sacrifice is an excellent way to boost your super or fund a vehicle, it requires careful planning. Always ensure your agreement is in writing and entered into before the work is performed to ensure it is legally effective. If you're unsure how these changes affect your 2026 tax position, check out our compliance services for expert help.