Salary Sacrifice into Super: How to Save Tax & Boost Retirement

Salary sacrifice into superannuation means directing a portion of your pre-tax salary into your super fund instead of receiving it as take-home pay. The key advantage is tax: salary sacrifice contributions are taxed at just 15% inside super, compared to your marginal tax rate of up to 45% if you received the money as salary.

For example, if you earn $100,000 and salary sacrifice $10,000 into super, that $10,000 is taxed at 15% ($1,500) inside your super fund rather than at your marginal rate of 32.5% plus Medicare levy ($3,725) in your hands. You save $2,225 in tax on that single contribution. Your employer's compulsory Super Guarantee (currently 12% of ordinary time earnings) and your salary sacrifice contributions together form your total concessional contributions.

This bit matters. You arrange salary sacrifice through your employer's payroll department — the money is deducted before PAYG tax is calculated, so your take-home pay reduces by less than the full contribution amount.

The concessional contributions cap for 2025-26 is $30,000 per financial year. This cap includes your employer's Super Guarantee contributions, so you need to subtract those before determining how much room you've for salary sacrifice.

On a $100,000 salary, your employer contributes $12,000 (12%), leaving $18,000 of cap space for salary sacrifice. On an $80,000 salary, employer contributions are $9,600, leaving $20,400 of available cap space. Exceeding the cap has serious consequences: excess concessional contributions are included in your assessable income and taxed at your marginal rate, plus you may face an excess concessional contributions charge.

To avoid this, calculate your cap space before setting up salary sacrifice and monitor it throughout the year. If you've multiple employers or receive irregular bonuses that attract additional SG contributions, the cap can be inadvertently breached. The ATO's myGov portal shows your year-to-date concessional contributions and remaining cap space.

Let's walk through a concrete example. Sarah earns $80,000 per year.

Don't skip this part. Her employer pays 12% Super Guarantee ($9,600). She has $20,400 of concessional cap space remaining. She decides to salary sacrifice $10,000 per year ($384.62 per fortnight).

Without salary sacrifice: $80,000 taxable income, tax payable approximately $16,467 (including Medicare levy), take-home pay approximately $63,533 per year. With salary sacrifice: $70,000 taxable income, tax payable approximately $13,192, take-home pay approximately $56,808 per year. The difference in take-home pay is $6,725 — but $10,000 went into super.

The 'cost' of putting $10,000 into super was only $6,725 in reduced take-home pay because of the tax saving of $3,275. Inside super, the $10,000 is taxed at 15% ($1,500), so $8,500 lands in Sarah's super account.

The net tax saving is $3,275 minus $1,500 = $1,775 per year. Over 20 years with investment returns, this strategy adds approximately $350,000–$450,000 to Sarah's retirement balance. That's the key takeaway.

If your income plus concessional super contributions exceeds $250,000, you pay an additional 15% tax on the super contributions that push you above this threshold — making the total super tax rate 30% instead of 15%. This is called Division 293 tax.

The practical side: For example, if your income is $240,000 and your total concessional contributions are $30,000 (combining employer SG and salary sacrifice), your income-plus-super total is $270,000, which is $20,000 above the threshold. You pay an additional 15% on $20,000 = $3,000 in Division 293 tax. Even with Division 293, salary sacrifice still saves tax: 30% inside super is still lower than the top marginal rate of 45% plus 2% Medicare levy (47%).

The saving is just smaller — approximately 17 cents per dollar instead of 32 cents for high income earners. The ATO issues a Division 293 assessment after you lodge your tax return, and you can choose to pay it from your super balance or from personal funds.

To arrange salary sacrifice, you need a salary sacrifice agreement with your employer. Most employers have a standard form or process — speak to your HR or payroll team.

Key points to negotiate: whether the sacrifice comes from your base salary or total remuneration (base salary is better for you as it doesn't reduce your SG calculation), the amount per pay period, and the start date. Some employers only allow changes at specific times (annually or quarterly). Ensure your employer is actually remitting the extra contributions to your super fund — check your super fund's online portal or statement to verify contributions are appearing.

You can also make personal deductible contributions directly to your super fund and claim a tax deduction on your tax return, which achieves the same tax outcome as salary sacrifice. This alternative is useful if your employer doesn't offer salary sacrifice or if you want to contribute a lump sum at year-end based on your final taxable income.

What actually happens: Since 1 July 2018, you can carry forward unused concessional contribution cap amounts from up to five previous financial years, provided your total super balance is below $500,000. This is enormously valuable for people with irregular income — contractors, freelancers, seasonal workers, or anyone who received a large bonus or windfall.

For example, if you only used $15,000 of your $30,000 cap in each of the past three years, you've $45,000 in unused cap space plus the current year's $30,000, giving you a total available cap of $75,000. Contributing a large lump sum in a single year can generate substantial tax savings. A person earning $120,000 who contributes $50,000 in concessional contributions in one year (using carry-forward) would reduce their taxable income to $70,000, saving approximately $9,000 in personal tax (net of the 15% contributions tax).

Check your carry-forward balance on the ATO's myGov portal under 'Super' before making large contributions.

Salary sacrifice into super is not suitable for everyone. The most significant limitation is that super is locked away until you reach preservation age (60 for most people).

If you might need the money before then — for a home deposit, emergency, or career change — it's trapped. Reducing your take-home pay also reduces your borrowing power for home loans, as lenders assess your after-sacrifice income. If you're planning to apply for a mortgage in the next 12 months, consider pausing salary sacrifice to maximise assessable income.

Here's the thing. Other considerations: salary sacrifice may reduce income protection insurance payouts if your policy is based on take-home pay rather than gross salary — check your policy wording. Government benefits tied to income (Family Tax Benefit, Child Care Subsidy) use adjusted taxable income which includes super contributions, so salary sacrifice doesn't reduce your income for these purposes. Finally, super fund investment returns are not guaranteed — poor fund performance or high fees can erode the tax advantage.