Salary Sacrifice Super: How to Legally Pay Less Tax and Retire Richer

What Is Salary Sacrifice to Super?

Salary sacrifice — also called salary packaging — is an arrangement between you and your employer where you agree to receive less take-home pay in exchange for additional contributions being made directly to your superannuation fund. The critical difference is timing: instead of receiving that money as income (where it gets taxed at your marginal rate), it flows into your super fund before income tax is applied.

Inside the super fund, those contributions are taxed at only 15% — the concessional contributions tax rate. For anyone earning above $45,000 a year, that is already a tax saving, because your marginal rate at that income level is at least 32.5% (plus the 2% Medicare levy). The higher your income, the bigger the saving.

To put it plainly: if you earn $120,000 and choose to redirect $10,000 of your salary into super, you save roughly $1,950 in income tax compared to receiving that money as take-home pay.

How the Concessional Contributions Cap Works

Before you start maximising salary sacrifice, you need to understand one critical rule: the concessional contributions cap. For FY2025-26, the cap sits at $30,000 per financial year. This is not just for salary sacrifice — it covers all pre-tax (concessional) contributions combined, including your employer's Superannuation Guarantee (SG) contributions.

Your employer is currently required to contribute 12% of your ordinary time earnings into super. On a $100,000 salary, that is $12,000 in SG contributions. This means you have only $18,000 of remaining concessional cap space to use for salary sacrifice.

If you exceed the $30,000 cap, the excess is included in your assessable income and taxed at your marginal rate — plus an interest charge. So it is important to do the maths before you instruct your employer to increase your salary sacrifice amount. Use CalcPhi's free Salary Sacrifice Calculator to model your exact cap position and tax saving before making any changes.

The Tax Saving at Every Income Level

The power of salary sacrifice grows with your income, because your marginal tax rate rises with each bracket. Here is how the numbers play out under the ATO's 2026-27 income tax rates.

Earning $80,000 — Sacrifice $5,000

Your employer's SG is $9,600. Sacrificing $5,000 brings total concessional contributions to $14,600, well within the cap. Your taxable income drops from $80,000 to $75,000. Income tax falls by roughly $1,625. The super fund pays 15% tax on $5,000 = $750. Your net annual benefit is approximately $875, and your take-home pay drops by only $3,375 — not the full $5,000, because the tax saving absorbs part of the cost.

Earning $100,000 — Sacrifice $10,000

SG contributions are $12,000. Sacrificing $10,000 pushes total concessional contributions to $22,000. Taxable income falls from $100,000 to $90,000. Tax saving is approximately $3,250. Fund pays $1,500 in contributions tax. Net annual benefit: $1,750. Take-home pay falls by $6,750.

Earning $150,000 — Sacrifice $12,000 (to Cap)

SG contributions are $18,000. Maximum additional sacrifice is $12,000 to reach the $30,000 cap. Taxable income drops from $150,000 to $138,000. Tax saving at 37% + 2% = approximately $4,680. Fund pays 15% on $12,000 = $1,800. Net annual benefit: $2,880. Your super balance grows faster and your tax bill shrinks — at the same time.

For a complete picture of how these numbers interact with your specific salary and employer SG, run your own scenario through CalcPhi's Salary Sacrifice Calculator. It shows the exact change in take-home pay, annual tax saving, and super balance boost — no guesswork required.

The Compound Effect: How It Adds Up Over Time

Reducing your tax bill by $1,000 to $3,000 a year is useful, but that is not the full story. Those extra contributions compound inside your super fund over decades — and that is where salary sacrifice becomes genuinely life-changing.

Consider someone who is 35 years old, earns $100,000, and starts sacrificing $10,000 a year. Assuming a 7% annual investment return inside super (a reasonable long-run assumption for a balanced fund), that extra $10,000 per year grows to roughly $760,000 in additional super balance by age 65. That is not counting the compounding effect of the tax savings themselves.

The earlier you start, the more powerful this becomes. Someone who begins salary sacrifice at 35 will end up with significantly more at retirement than someone who waits until 45, even if both contribute the same total amount. Time in the market — and in the super system — matters enormously.

Use CalcPhi's Super Balance Calculator to project your retirement balance with and without salary sacrifice, and see the long-run difference for your own numbers.

Carry-Forward Contributions: A Bonus for Those Who Missed Out Earlier

What if you did not start salary sacrificing in your 30s or 40s? There is still a valuable option available called carry-forward concessional contributions. If your total super balance was below $500,000 on 30 June of the previous financial year, you can use unused concessional cap amounts from the prior five years on top of the current year's $30,000 cap.

This means someone who has been in and out of the workforce — perhaps after raising children, working part-time, or dealing with an illness — can make a larger catch-up contribution in a single year when they return to full-time work and have the cash flow to do so. The ATO tracks unused cap amounts automatically through myGov, so you can check your available carry-forward balance there at any time.

For a deep dive into how this works and who benefits most, see CalcPhi's guide on Catch-Up Super Contributions.

How to Actually Set Up Salary Sacrifice

Setting up salary sacrifice is simpler than most people expect. It does not require a financial adviser, and in most cases it takes a single conversation with your payroll team or HR department.

The process typically works as follows. First, decide how much you want to sacrifice — keeping in mind the concessional cap and your SG contributions. Second, complete a salary sacrifice agreement with your employer. This is a formal written arrangement that specifies the amount and the super fund it will go to. Third, your employer adjusts your payroll so that the sacrificed amount is paid directly to your super fund before income tax is calculated. Your payslip will show a lower gross salary for tax purposes.

A few things to confirm before you proceed. Check that your employer offers salary sacrifice arrangements — most do, but it is technically at the employer's discretion. Confirm that the sacrificed amount goes to your nominated super fund, not a default employer fund you may not have chosen. And make sure your employer calculates SG contributions on your original (pre-sacrifice) salary, not the reduced amount — this is a legal requirement since 2020 and prevents employers from using salary sacrifice to reduce their SG obligation.

What Can You Salary Sacrifice Beyond Super?

While this article focuses on super, it is worth knowing that salary sacrifice can also apply to other benefits in some workplaces — particularly in the healthcare, charity, and public sector. Items like novated car leases, laptops, and portable electronic devices may qualify for FBT exemptions, further reducing your taxable income.

However, salary sacrifice to super is available to virtually every employee in Australia, whereas other packaging benefits depend on your employer and industry. For most people, super sacrifice is the most straightforward and highest-value option.

Common Mistakes to Avoid

The most frequent mistake is exceeding the concessional contributions cap without realising it. This can happen if you change employers mid-year (both employers' SG contributions count toward the cap) or if you receive a bonus that triggers extra SG contributions. Always review your cap position before the end of the financial year — ideally in April or May — so you have time to adjust.

The second mistake is choosing the wrong fund. If you salary sacrifice into an old or poorly performing fund, you may be paying higher fees that erode the tax benefit. Review your fund's investment options, fees, and insurance costs. Switching to a higher-performing fund can add tens of thousands of dollars to your retirement balance over a working life.

Finally, do not confuse salary sacrifice with after-tax (non-concessional) contributions. Non-concessional contributions come out of your take-home pay after tax — they have their own separate cap of $120,000 per year — and do not give you a direct income tax deduction in the same way. Both strategies have a place in a well-structured retirement plan, but they work differently.

Salary Sacrifice and the Age Pension

One concern some people raise is whether contributing more to super through salary sacrifice affects their eventual Age Pension entitlement. The answer depends on your total super balance at retirement. Super assets in the accumulation phase (before you start drawing on them) are assessed under the assets test for the Age Pension, so a significantly larger super balance could reduce your Age Pension payments.

However, for most working Australians, the decades of compound growth and tax savings from salary sacrifice far outweigh any modest reduction in Age Pension entitlement. And the Age Pension itself is means-tested — if your super is large enough that your pension is reduced, that generally means you are already in a comfortable financial position. To understand how your projected super balance interacts with Age Pension eligibility, use CalcPhi's Age Pension Calculator for a full picture.

Frequently Asked Questions

• Does salary sacrifice reduce my taxable income?

  Yes. When you salary sacrifice to super, the sacrificed amount is not included in your assessable income for the year. Your employer pays income tax on the reduced gross salary, which means less PAYG withholding from each payslip. At the end of the year, your payment summary reflects the lower taxable amount, and you pay less income tax overall.

• Is there a limit on how much I can salary sacrifice to super?

  The limit is the concessional contributions cap, which is $30,000 per financial year for FY2025-26. This cap covers all pre-tax super contributions — your employer's SG plus anything you salary sacrifice. On a $100,000 salary with 12% SG, your maximum salary sacrifice is $18,000. Going above the cap means the excess is taxed at your marginal rate plus an interest charge.

• Can casual or part-time workers salary sacrifice to super?

  Yes, salary sacrifice is available to any employee whose employer offers it, regardless of whether you work full-time, part-time, or on a casual basis. What changes is the dollar amount available — because your SG contributions will be lower, you may have more cap space to sacrifice. The same rules around the $30,000 concessional cap apply.

• What happens to my salary sacrifice contributions if I change jobs?

  Your super balance, including all salary sacrifice contributions, stays in your nominated super fund regardless of where you work. When you move to a new employer, simply provide them with your fund details and set up a new salary sacrifice arrangement. Be careful to account for the SG contributions from both employers when calculating your remaining concessional cap space for that financial year.

• Does salary sacrifice affect my employer's super guarantee obligations?

  No — since 2020, employers are legally required to calculate SG contributions on your original ordinary time earnings, not your reduced post-sacrifice salary. This prevents salary sacrifice from being used to reduce the employer's SG obligation. If your employer is calculating SG on the sacrificed salary, that is a compliance breach you should raise with them or report to the ATO.

• Is salary sacrifice the same as a personal super contribution?

  No. A salary sacrifice is made before income tax is applied, so it is treated as an employer contribution (taxed at 15% in the fund). A personal super contribution is made from your after-tax take-home pay. You may be able to claim a tax deduction on personal contributions by lodging a Notice of Intent to Claim form with your fund — but the process is different, and they are not the same as salary sacrifice.