Salary Sacrifice into Super: How It Works & How Much You Save (2025-26)
Learn how salary sacrificing into superannuation works in Australia. Calculate your tax savings, understand the contribution caps, and see if it is worth it for your income level.
How salary sacrifice into super works
Salary sacrifice (also called salary packaging) into super means redirecting part of your pre-tax salary directly into your superannuation fund. Instead of receiving the money as salary (taxed at your marginal rate of up to 45%), it goes into super where it is taxed at just 15%. **Example:** You earn $110,000 and salary sacrifice $10,000 into super. **Without salary sacrifice:** - Taxable income: $110,000 - Tax on the $10,000 (at 32.5% marginal rate + 2% Medicare): $3,450 - You keep: $6,550 in your bank account **With salary sacrifice:** - Taxable income: $100,000 - $10,000 goes into super, taxed at 15% = $1,500 in contributions tax - Your super receives: $8,500 - Tax saved: $3,450 - $1,500 = $1,950 So for $1,950 less tax, you put $8,500 into super instead of $6,550 into your bank. That is an immediate 30% boost to your savings, plus the money grows in the low-tax super environment. **How to set it up:** 1. Ask your employer's HR or payroll team for a salary sacrifice arrangement form 2. Specify the dollar amount per pay cycle you want sacrificed 3. Your employer deducts the amount before calculating PAYG withholding tax 4. The amount is paid to your super fund along with your employer SG contributions 5. You can start, stop, or change the amount at any time (with reasonable notice) **Important:** Salary sacrifice is an arrangement with your employer — they must agree to it. Most employers are happy to accommodate it as it costs them nothing (your total employment cost stays the same). However, it only applies to future salary, not past earnings.
How much tax do you actually save?
The tax saving from salary sacrifice depends on your marginal tax rate. The bigger the gap between your marginal rate and the 15% super tax rate, the more you save. **2025-26 tax rates and salary sacrifice savings per $10,000 sacrificed:** | Taxable Income | Marginal Rate | Tax on $10K as Salary | Tax on $10K in Super | Saving | |---|---|---|---|---| | $18,201 - $45,000 | 16% | $1,600 | $1,500 | $100 | | $45,001 - $135,000 | 30% | $3,000 | $1,500 | $1,500 | | $135,001 - $190,000 | 37% | $3,700 | $1,500 | $2,200 | | $190,001+ | 45% | $4,500 | $1,500 | $3,000 | *Note: Medicare levy of 2% adds to the marginal rates above but is omitted for simplicity.* **Key observations:** - If you earn under $45,000, the saving is minimal — you may be better off using the government co-contribution instead (contribute after-tax and get up to $500 free) - The sweet spot is $90,000-$190,000, where you save $1,500-$2,200 per $10,000 sacrificed - High earners ($190,000+) save the most per dollar but need to watch the Division 293 tax (an additional 15% super tax on income above $250,000) **The compounding effect:** The real power is not just the tax saving — it is the compounding growth inside super. $10,000 per year salary sacrificed from age 35 to 65, earning 7% per year, grows to approximately $1,010,000. Without salary sacrifice, you would have only $6,550/year after tax to invest, growing to approximately $660,000. That is a $350,000 difference.
Concessional contribution cap and Division 293
Salary sacrifice contributions count towards your concessional (before-tax) contribution cap, which also includes your employer's SG contributions. **2025-26 concessional cap: $30,000** This cap includes: - Employer SG (12% of your ordinary time earnings) - Salary sacrifice amounts - Personal deductible contributions (claimed via s290-170 notice) **Example cap calculation:** Salary: $120,000 - Employer SG (12%): $14,400 - Maximum salary sacrifice before exceeding cap: $30,000 - $14,400 = $15,600 If you exceed the cap, the excess is added to your taxable income and taxed at your marginal rate (effectively removing the tax benefit), plus an excess concessional contributions charge based on the shortfall interest charge rate. **Carry-forward unused cap:** If your total super balance is under $500,000, you can carry forward unused concessional cap space from the previous 5 years. This is powerful if you had years of low or no contributions. **Division 293 — additional tax for high earners:** If your income plus concessional contributions exceeds $250,000, you pay an additional 15% tax on the portion of contributions above the $250,000 threshold. This brings the effective super tax rate to 30% for high earners. **Example:** Income: $240,000 + $30,000 salary sacrifice = $270,000 - $20,000 is above the $250,000 threshold - Additional Division 293 tax: $20,000 × 15% = $3,000 - Total super tax on that $20,000: 15% + 15% = 30% - Still cheaper than the 45% marginal rate outside super (saving 15% instead of 30%) Even with Division 293, salary sacrifice into super saves tax for everyone earning over $45,000.
Salary sacrifice vs personal deductible contributions
Since 2017, anyone under 75 can claim a tax deduction for personal super contributions (via the s290-170 notice), which gives a similar tax outcome to salary sacrifice. So which should you use? **Salary sacrifice advantages:** - Automatic — set and forget through payroll - Reduces your PAYG withholding tax throughout the year (you see the benefit in every pay slip) - May reduce your reportable income for certain government benefits - No paperwork required with your super fund at tax time **Personal deductible contribution advantages:** - More flexible — you can decide how much to contribute at the end of the financial year based on your actual income - Available to self-employed and contractors (who cannot salary sacrifice) - You can make a large one-off contribution (e.g., from a bonus, investment return, or asset sale) - You can change your mind — if you do not submit the s290-170 notice, the contribution is treated as non-concessional instead **Which is better?** For employees on a stable salary, salary sacrifice is simpler and more disciplined. For those with variable income, personal deductible contributions offer more control. Many people use both: salary sacrifice a set amount each pay cycle, then top up with a personal contribution before June 30 if they have unused cap space. **Important differences:** - Salary sacrifice counts towards SG calculations in some circumstances (check your employment agreement) - Personal contributions require you to submit the s290-170 notice BEFORE lodging your tax return - Personal contributions give you the tax benefit as a lump sum refund, while salary sacrifice spreads it across the year **For most employed Australians earning $80,000+, salary sacrifice is the recommended starting point.** It is simple, automatic, and the pay-cycle tax savings help with budgeting. Add personal contributions at EOFY if you have remaining cap space.
How to set up salary sacrifice and common pitfalls
Setting up salary sacrifice is straightforward, but there are several pitfalls that catch people out: **Step-by-step setup:** 1. Calculate your available cap space: $30,000 minus employer SG for the year 2. Divide by remaining pay periods to get per-pay-period amount 3. Complete your employer's salary sacrifice form (ask HR or payroll) 4. Specify the amount and your super fund details 5. Monitor your super fund statements to confirm contributions are arriving **Common pitfalls:** **1. Exceeding the $30,000 cap:** Many people forget to include their employer SG when calculating how much to sacrifice. If you earn $130,000 and sacrifice $20,000, your total concessional contributions are $15,600 (SG) + $20,000 = $35,600 — exceeding the cap by $5,600. The excess is added back to your income and taxed at your marginal rate plus the excess charge. **2. Timing of contributions:** Your employer may not remit salary sacrifice contributions to your super fund immediately. Under current rules, employers must pay SG quarterly (by the 28th of the month after quarter end). From July 2026, Payday Super requires payment within 7 days. If Q4 contributions hit your fund after June 30, they count towards the NEXT financial year's cap. **3. Impact on take-home pay:** Salary sacrifice reduces your take-home pay. Make sure you can comfortably cover your expenses. A good approach is to start with a small amount ($200-$500/fortnight) and increase gradually. **4. Impact on government benefits:** Salary sacrifice can affect family tax benefit, childcare subsidy, and other income-tested benefits. Check how 'adjusted taxable income' and 'reportable employer super contributions' affect your entitlements before committing to large amounts. **5. Not reviewing annually:** Your SG increases as your salary increases. Review your salary sacrifice amount each July to ensure you are maximising the cap without exceeding it. A 5% pay rise means your SG goes up by the same percentage, leaving less room for salary sacrifice. Use our Salary Sacrifice Calculator to model different sacrifice amounts and see the impact on your take-home pay, tax savings, and projected retirement balance.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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