What is salary sacrificing into super?
Salary sacrifice is an arrangement where you agree with your employer to take a lower gross salary, with the difference paid directly into your superannuation fund as an employer contribution. Because the money never passes through your hands as take-home pay, it's not subject to income tax at your marginal rate — instead, it's taxed at the super concessional rate of 15%.
These salary sacrifice contributions are classified as concessional contributions — the same bucket that includes your employer's compulsory Super Guarantee (SG) contributions. They count toward the same annual cap.
The 2025–26 concessional contributions cap
For the 2025–26 financial year, the concessional contributions cap is $30,000 per person. This includes:
- Your employer's compulsory SG contributions (currently 11.5% of salary)
- Any salary sacrifice contributions you make
- Personal concessional contributions you claim a tax deduction for (if self-employed)
Watch the cap: If your SG contributions alone are $20,000, you can only salary sacrifice a further $10,000 before hitting the cap. Contributions above $30,000 are included in your assessable income and taxed at your marginal rate, with a 15% offset — effectively neutralising the tax benefit entirely.
The tax saving: a real example
The benefit of salary sacrifice grows with your marginal tax rate. Here's how it looks for someone earning $150,000.
Without salary sacrifice (salary $150,000)
With $12,750 salary sacrifice (using remaining cap)
By sacrificing $12,750, take-home pay drops by only $8,030 (not $12,750) because the tax savings partially offset the reduction. Meanwhile, $12,750 minus $1,913 in super tax = $10,837 lands in your super. You've effectively contributed $10,837 to your retirement savings for an out-of-pocket cost of $8,030.
How the tax saving scales with income
| Taxable income | Marginal rate | Super rate | Tax saving per $1 sacrificed |
|---|---|---|---|
| $18,201 – $45,000 | 19% | 15% | $0.04 |
| $45,001 – $120,000 | 32.5% | 15% | $0.175 |
| $120,001 – $180,000 | 37% | 15% | $0.22 |
| $180,001+ | 45% | 15% | $0.30 (or $0.15 if Division 293 applies) |
Division 293 tax: If your income plus concessional super contributions exceeds $250,000, the ATO charges an additional 15% tax on your super contributions — called Division 293 tax. This brings your effective tax rate on contributions to 30%, still below the 45% top marginal rate, but the benefit is halved compared to lower income earners.
The carry-forward unused cap — a powerful catch-up mechanism
If your super balance was below $500,000 on 30 June of the previous financial year, you can carry forward unused concessional contribution cap space from up to five prior years. This allows you to make significantly larger concessional contributions in years when you have extra cash — such as from a bonus, a property sale, or business income.
Carry-forward example
In this example, you could make up to $67,750 in concessional contributions in 2025–26 — all taxed at 15% instead of your marginal rate. For someone at the 37% bracket, that's over $15,000 in tax savings compared to taking it as income.
How to set up salary sacrifice
The process is straightforward for employees:
- Check your SG contributions — calculate what your employer already contributes (salary × 11.5%) to know how much cap space you have left
- Contact your payroll or HR team — ask to enter a salary sacrifice arrangement. Most large employers have a standard form; smaller employers may need a letter of agreement
- Specify the amount — you can nominate a fixed dollar amount per pay period or a percentage of salary
- Confirm with your super fund — contributions will appear as employer contributions in your fund statement
Timing tip: Salary sacrifice arrangements generally need to be in place before you earn the income — you can't sacrifice salary you've already received. Set up or adjust your arrangement at the start of a pay period, not after.
Salary sacrifice vs personal deductible contributions
If you're self-employed, a contractor, or your employer doesn't offer salary sacrifice, you can achieve a similar outcome through personal concessional contributions. You contribute from your after-tax bank account, then claim a tax deduction via a Notice of Intent to Claim (submitted to your super fund before lodging your tax return). The super fund then taxes those contributions at 15%, and you receive a tax deduction that reduces your income tax.
The end result is nearly identical to salary sacrifice — the main difference is that personal contributions involve a timing lag between paying tax and receiving the refund, whereas salary sacrifice reduces your tax throughout the year as you're paid.
Things to watch out for
Impact on income-tested benefits
Salary sacrifice reduces your taxable income, which can affect income-tested government payments and thresholds — including the Medicare Levy Surcharge threshold, private health rebate tier, HECS-HELP repayment rates, and spouse super contribution offset eligibility. Run the full picture before maximising contributions.
Don't sacrifice below the super guarantee base
Your employer calculates SG on your ordinary time earnings, which is generally your base salary. If your salary sacrifice agreement reduces your gross salary below the ordinary time earnings figure, some employers may correspondingly reduce their SG contributions — though this is increasingly rare as legislation has tightened. Confirm with your employer how your SG is calculated under the arrangement.
Preservation — the money is locked away
Super contributions are preserved until you meet a condition of release — primarily reaching preservation age (currently 60 for those born after 1964) and retiring. Salary sacrificing more than you can afford is a real risk: you won't be able to access that money if you need it for an emergency, mortgage, or other purpose before retirement.
Disclaimer: Super rules and tax rates are subject to change. This article reflects the 2025–26 financial year. Consult a financial adviser or accountant before making significant changes to your super contribution strategy.
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