Teacher deferred salary schemes: 4 over 5 in every state, and how each is taxed

How a 4-over-5 scheme works

You agree to be paid 80% of your income for five years. You teach for the first four, and the 20% held back each year pays for the fifth year off. Your pay doesn't stop in the leave year, so there's no year with nothing coming in. Teachers use it for travel, study, a family year or a break before they burn out.

The catch is that schemes come in two designs, and the ATO taxes them differently. Its position is in Taxation Determination TD 93/242, issued in 1994 and still current. If your employer simply pays you less under the contract and pays the rest in the leave year, the deferred money is taxed when you get it. If the 20% is put aside in an account on your behalf, it's taxed each year as you earn it. Which design your state uses decides whether you save any tax.

State by state: what's available for teachers

Worked example: NSW (after-tax set-aside)

The NSW leave year runs 12 months and normally starts on Day 1, Term 1. It can't start before year 5. You can withdraw at any time and get the balance back as a lump sum, but you can't suspend the scheme, and more than 4 weeks of non-service leave pushes your leave year back. Temporary and casual teachers can't join. For a NSW teacher on this salary, a salary-reduction design would cut tax by about $9,480 over the five years (80% of salary is $106,738, taxed at $24,676 a year), but that isn't how the NSW scheme is built.

Worked example: Tasmania (salary reduction)

The saving comes from progressive tax. You get the tax-free threshold and lower brackets five times instead of four, and less of your income is taxed at 30%. WA's 80% arrangement works the same way. Its guidelines say year-5 pay is set at the rate applying at the end of year 4, with no increments or pay rises during the leave year.

Super: the part people forget

In Tasmania, super is paid on the reduced plan salary. On the example above, that's 12% of $97,914, or $11,750 a year, against $14,687 on full salary. Over five years the plan pays $58,750 in employer super, about the same as four years' full super with an unpaid year ($58,748). So the scheme doesn't cost you super compared with unpaid leave, but you get about $14,700 less than if you'd simply worked all five years.

NSW and Queensland calculate super on full salary while you work. NSW also deems superable salary to be full salary for all five years for SSS and SASS members, and the department pays employer contributions at that rate. Neither NSW nor Queensland says whether SG is paid on the leave-year payment for accumulation-fund members, so ask payroll and your fund. If you're in a defined benefit scheme, a reduced salary near the end of your career could lower your final-salary benefit. Get an estimate first.

ACT, NT, Victoria and SA

• ACT: no 4-over-5, but permanent school-based teachers and principals can buy one term (10 weeks, paid off over 26 paydays) or one semester (22 weeks, over 52 paydays). Applications close 1 March, 1 May, 1 August and 1 December. It counts as service and doesn't affect super. The agreement reached nominal expiry in 2026, so check for a successor.
• NT: Flexible Lifestyle Leave lets you buy 1 to 8 weeks by paying for it over up to 12 months. You need 12 months' continuous service and CEO approval, and the leave has no loading. The agreement mentions recreation leave, so check how it applies to school-based teachers.
• Victoria: we found no self-funded or deferred salary clause for teachers in VGSA 2022, only leave without pay for up to 12 months, which generally doesn't count as service. That's what we didn't find, not a confirmed 'no', and the new VGSA 2026 replaced VGSA 2022 on 23 October 2026; we have not yet confirmed whether it adds such a clause. Ask your principal or HR.
• SA: purchased leave exists across the SA public sector and is treated as leave without pay for administration. We couldn't confirm a 4-over-5 for DfE teachers. Ask the department and get advice from Super SA before you sign.

Rules that can catch you out

• Leaving early: in WA and NSW you get the deferred money back as a lump sum if you withdraw. In a salary-reduction scheme it's taxed in the year you get it, which can wipe out the tax saving. In Tasmania, accrued leave is paid as a lump sum less tax if you leave.
• Queensland sabbatical: you have no WorkCover cover and can't take any leave except paid maternity leave. Sabbatical periods over 9 working days don't count as service for long service or sick leave accrual. Give at least two terms' notice.
• WA leave year: your 4 weeks of annual leave is absorbed into the year off, leave loading is paid in its first 4 weeks, and long service and personal leave anniversary dates move back 73 days.
• Service and steps: check in writing whether your leave year counts for increments and long service leave. Rules differ across states.
• HECS-HELP: in a salary-reduction scheme your repayment income falls, so repayments drop. In NSW and Queensland they stay based on full salary. See HECS-HELP for teachers.
• Borrowing: a lender may assess the reduced salary on your payslips if you buy or refinance during the scheme.

Is a deferred salary scheme right for you?

If you want a shorter break, half-pay long service leave or part-time work or job share may suit better. For an unpaid break, see leave without pay and career breaks. Every department recommends independent financial advice before you join, and so do we.