The Australian Taxation Office (ATO) decrees that, to be effective, a salary packaging arrangement must operate prospectively. In other words, employees must not earn income and then direct their employer to apply it on their behalf. Salary, which is packaged retrospectively, is reclassified as income by the ATO and subject to income tax.

The salary sacrifice arrangement for packaging superannuation contributions must be properly structured so that the amount sacrificed is not in lieu of an existing and continuing obligation of an employee to make contributions.

The ATO also stipulates that, a salary packaging arrangement must reduce an employee's remuneration. This means that a benefit cannot simply be set up as a deduction from pay: the employer must ensure employee’s salary is reduced by the value of the benefit.