Salary Sacrifice Super: How to Legally Pay Less Tax and Retire Richer
Salary sacrificing into superannuation is one of the most effective legal tax reduction strategies available to Australian employees. By redirecting a portion of your pre-tax salary into super, you replace income taxed at your marginal rate (up to 47%) with a contribution taxed at only 15% inside the fund. On a $120,000 salary, sacrificing $15,000 per year saves approximately $5,175 in income tax annually — while accelerating your retirement savings at the same time. Here is exactly how it works, what the limits are, and whether it is right for your situation.
How Salary Sacrifice Super Works
Salary sacrifice is an arrangement between you and your employer where you agree to forgo a portion of your pre-tax salary in exchange for your employer making an equivalent contribution to your superannuation fund. Because the sacrificed amount never reaches your bank account, it is not included in your assessable income for tax purposes — instead, it enters super taxed at the concessional rate of 15%.
The mechanics: your employer takes the sacrifice amount from your gross salary before calculating PAYG withholding. This reduces your taxable income, which reduces your income tax. The money lands in your super fund as a concessional (pre-tax) contribution and is taxed at 15% there. If your marginal tax rate is above 15% — which applies to anyone earning over $18,200 — salary sacrifice produces a positive tax differential.
Salary sacrifice contributions count toward your concessional contributions cap, which includes your employer's Superannuation Guarantee (SG) contributions. For 2025-26, the concessional cap is $30,000 per year. If your employer contributes $12,000 in SG (12% of $100,000 salary), you can salary sacrifice up to a further $18,000 before hitting the cap.
| Salary | Marginal Rate | Sacrifice $10,000 | Sacrifice $20,000 |
|---|---|---|---|
| $50,000 | 32.5% | $1,750 saving | $3,500 saving |
| $80,000 | 32.5% | $1,750 saving | $3,500 saving |
| $120,000 | 37% | $2,200 saving | $4,400 saving |
| $180,000 | 45% | $3,000 saving | $6,000 saving |
| $200,000+ | 47% (incl. Medicare) | $3,200 saving | $6,400 saving |
Tax saving = (marginal rate − 15%) × sacrifice amount. Figures exclude the 2% Medicare Levy where applicable and assume no Division 293 tax applies.
The Concessional Contributions Cap — $30,000 in 2025-26
The concessional contributions cap limits the total pre-tax contributions you can make to super each financial year. For 2025-26, this cap is $30,000 (up from $27,500 in 2023-24). All concessional contributions count toward the cap:
- Employer SG contributions (12% of ordinary time earnings)
- Salary sacrifice contributions
- Personal deductible contributions (where you claim a tax deduction)
If you exceed the cap, the excess is included in your assessable income and taxed at your marginal rate (with a 15% tax offset to avoid double taxation). It is important to calculate the available cap space before setting your salary sacrifice amount.
Carry-forward (catch-up) concessional contributions: If your total super balance was below $500,000 on 30 June of the prior year, you can carry forward unused concessional cap space from the previous five years. This means someone who has rarely used salary sacrifice can potentially contribute significantly more than $30,000 in a single year to catch up — a powerful strategy for those approaching retirement or with recent salary increases.
Division 293 Tax — High Earners Pay More
Individuals earning above $250,000 per year (including concessional super contributions) pay an additional 15% tax on their concessional contributions — called Division 293 tax. This reduces the tax benefit of salary sacrifice for high earners: instead of a 15% flat tax on contributions, they effectively pay 30%. The ATO assesses Division 293 automatically and sends a notice of assessment after your tax return is lodged.
Even at 30%, salary sacrifice remains worthwhile for income above $250,000 because the top marginal rate is 47% (including Medicare Levy). A 30% rate inside super is still significantly lower than 47% outside it.
Worked Example: What Salary Sacrifice Actually Saves
Scenario: Rachael earns $130,000 and salary sacrifices $18,000 per year.
Her employer already contributes $15,600 in SG (12% × $130,000). Adding $18,000 salary sacrifice brings total concessional contributions to $33,600 — which is above the $30,000 cap. She should reduce her sacrifice to $14,400 to stay within the cap ($30,000 − $15,600 SG = $14,400 available).
With a $14,400 salary sacrifice:
- Taxable income reduces from $130,000 to $115,600
- Income tax saving: $14,400 × (37% − 15%) = $3,168 per year
- Take-home pay reduction: $14,400 − $3,168 = $11,232 per year less in hand
- Super balance increases by an extra $14,400 × (1 − 15%) = $12,240 after contributions tax
Over 20 years at 7% investment returns, that $12,240 per year of additional super grows to approximately $513,000 — a significant retirement boost costing only $11,232 per year from after-tax pay.
How to Set Up Salary Sacrifice
Salary sacrifice is arranged through your employer — you cannot do it unilaterally. The process:
- Check your employer's policy: Most medium and large employers offer salary sacrifice arrangements. Some smaller employers do not. Ask your HR or payroll department.
- Calculate your available cap space: Your employer SG contributions count toward your $30,000 cap. Check your super fund statement or ATO MyGov for current year contributions before setting the sacrifice amount.
- Submit a salary sacrifice agreement: Your employer will provide a form or process. Specify the dollar amount per pay period or percentage of salary.
- Review the arrangement annually: The concessional cap may increase with indexation. Your salary and SG contributions change year to year. Review your arrangement each July.
Salary sacrifice takes effect from the date your employer processes it — it cannot be applied retrospectively to past pay periods already processed. Set it up at the start of the financial year for maximum benefit.
Salary Sacrifice vs Personal Deductible Contributions
If your employer does not offer salary sacrifice, you can achieve a similar tax outcome by making personal contributions to super and claiming a tax deduction. You contribute from after-tax pay, then lodge a "Notice of Intent to Claim a Deduction" with your super fund before lodging your tax return. The contribution is then treated as concessional (taxed at 15% inside super, with the income tax saving appearing as a refund at tax time).
The end result is almost identical in tax terms, but the cash flow timing differs: salary sacrifice reduces your PAYG withholding each pay period, while personal deductible contributions produce a lump-sum refund at tax time. For those who prefer to manage their own contribution timing and amounts throughout the year, personal deductible contributions offer more flexibility.
Frequently Asked Questions
- Does salary sacrifice reduce my employer's SG contributions?
- It should not, but this depends on your employment contract and when you started. For employees engaged after 1 January 2020, the Superannuation Guarantee (SG) is calculated on your ordinary time earnings before the salary sacrifice. For older contracts, SG may have been calculated on post-sacrifice salary. Check your employment agreement. If your SG reduces when you sacrifice, the tax saving is partially offset by the reduction in employer contributions.
- Can I salary sacrifice if I am self-employed or a contractor?
- No — salary sacrifice is only available through an employer-employee relationship. If you are self-employed or a sole trader, you can make personal contributions to super and claim them as a tax deduction (personal deductible contributions), which achieves the same tax outcome.
- What happens if I exceed the concessional cap?
- Excess concessional contributions are included in your assessable income and taxed at your marginal rate, minus a 15% tax offset (to account for contributions tax already paid inside super). You can elect to release the excess from your super fund to pay the tax bill, or leave it in super and pay the tax from other funds. The ATO issues an excess concessional contributions determination after your return is assessed.
- Does salary sacrifice affect my take-home pay significantly?
- Yes, but the net impact is less than the headline sacrifice amount because the tax saving offsets part of the cost. Sacrificing $10,000 per year at a 37% marginal rate reduces take-home pay by only $6,300 ($10,000 − $3,700 tax saved). The remaining $9,300 (after 15% contributions tax) enters super. You give up $6,300 in take-home pay but add $8,500 to your retirement savings.
