Salary Sacrifice Into Super
How salary sacrifice works, the FY2025-26 concessional cap, the real tax savings, when it is worth it, and how to set it up with your employer.
General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
Step 1.What Salary Sacrifice Actually Means for Your Super
Salary sacrifice (or 'salary packaging') is a formal arrangement where you give up a portion of your before-tax salary in exchange for your employer paying that amount directly into your super fund. It is a concessional contribution, which means it is taxed at 15% inside super rather than at your marginal tax rate. For a 30% marginal rate earner, every $1,000 sacrificed saves $150 in tax today ($300 income tax foregone minus $150 contributions tax). For a 37% or 45% marginal earner, the gap is wider. The catch is that you cannot access the money until you meet a condition of release — typically retirement after age 60, or age 65 regardless of employment. Salary sacrifice is a long-term lock-up, not a flexible savings account.
Step 2.The Concessional Contributions Cap for FY2025-26
For the 2025-26 financial year the concessional contributions cap is $30,000 per person. This cap includes your employer's Super Guarantee contributions (currently 12% of your ordinary time earnings), your salary sacrifice amount, and any personal deductible contributions you claim. On a $100,000 base salary, your employer SG is $12,000, so your maximum extra salary sacrifice before hitting the cap is $18,000. Exceeding the cap triggers extra tax on the excess — it is added to your assessable income and taxed at your marginal rate, with a credit for the 15% already paid. If your total super balance is below $500,000 at the previous 30 June, you can also carry forward unused concessional cap from the past five financial years, which can be a powerful catch-up strategy for career breaks.
Step 3.The Real Tax Savings — and Division 293
The tax saving from salary sacrifice equals the difference between your marginal tax rate and 15% on each dollar sacrificed. At the 30% bracket, you save 15 cents on the dollar. At 37%, you save 22 cents. At 45%, you save 30 cents. Over a career, compounded tax savings can add hundreds of thousands to your final balance. However, high income earners need to watch Division 293. If your income plus concessional contributions exceeds $250,000, an extra 15% tax applies to the concessional contributions above that threshold, taking the effective tax on those contributions from 15% to 30%. It is still better than your 45% marginal rate, but it narrows the gap. Savings Mate's Division 293 calculator shows exactly when this kicks in.
Step 4.When Salary Sacrificing Is the Right Move
Salary sacrifice makes most sense for people who meet three conditions. First, you are on the 30% bracket or higher — the tax saving at the 16% bracket is zero because you would pay 16% in income tax anyway and 15% inside super, so you give up access for no gain. Second, you have no high-interest debt — credit cards, personal loans, or anything above 7% should be paid off before locking money in super. Third, you have an emergency fund of 3-6 months of expenses outside super. Once all three are true, salary sacrifice is one of the most tax-efficient long-term savings vehicles available in Australia. It is particularly powerful in the 10-15 years before retirement, when the lock-up period is shortest and the tax benefits are maximised.
Step 5.When Salary Sacrificing Does Not Make Sense
Salary sacrifice is wrong for several groups. If you are under 40 and saving for a first home, the FHSSS scheme lets you withdraw voluntary contributions for a deposit — but only up to $50,000, and only if you claim it correctly, so check eligibility before routing money through super. If you are close to retirement and worried about preservation age changes, sacrificing large amounts you cannot access creates liquidity risk. If you might leave Australia permanently, your super becomes a Departing Australia Superannuation Payment (DASP) and is taxed at 35-65% on withdrawal, which wipes out any salary sacrifice benefit. And if your employment is unstable, you need the cash flow flexibility more than the tax efficiency. Never sacrifice so much that you struggle to pay your mortgage, rent or living costs.
Step 6.How to Set Up Salary Sacrifice With Your Employer
Salary sacrifice must be set up before you earn the income — you cannot retrospectively sacrifice pay you have already received. Write to your payroll or HR team requesting a salary sacrifice agreement, specifying the amount per pay cycle (fixed dollar or percentage of salary). Your employer is not legally required to offer salary sacrifice, but most large employers do and many awards and enterprise agreements require it. Confirm in writing that the sacrifice is in addition to your SG, not a replacement for it — some unscrupulous employers reduce SG when employees salary sacrifice, which is legal under current law but against the spirit of the system. As an alternative, you can make personal contributions directly to your super fund and claim a tax deduction at tax time using a 'notice of intent to claim' form — this gives you the same tax outcome and more flexibility than a payroll arrangement.
Useful Tools
- Salary Sacrifice Calculator — see your tax saving at every contribution level
- Superannuation Calculator — project the long-term impact
- Division 293 Calculator — check if the extra high-income tax applies to you
- Tax Calculator — see your take-home pay with sacrifice
Resources
- ATO — Concessional contributions cap
- ATO — Division 293 tax
- ASIC MoneySmart — Super contributions