What is salary sacrificing?
Salary sacrificing means agreeing with your employer to redirect part of your pre-tax salary into superannuation instead of receiving it as take-home pay. Because the money goes into super before income tax is calculated, you pay less income tax.
Inside the super fund, the contributed amount is subject to a 15% contributions tax. For most people, that is substantially lower than their marginal income tax rate, which starts at 19% and can reach 47% (including the Medicare levy) at the top.
Salary sacrifice contributions are classified as concessional contributions, the same category as your employer's compulsory Superannuation Guarantee (SGC) contributions.
How it works in practice
Suppose your salary is $100,000 and you arrange to sacrifice $10,000 into super each year. Your employer treats your taxable income as $90,000. You pay income tax on that lower amount. The $10,000 goes straight into your super fund, where a 15% contributions tax ($1,500) is deducted, leaving $8,500 invested on your behalf.
The tax saving comes from the gap between your marginal rate and the 15% contributions tax. If your marginal rate is 32.5% (income between $45,001 and $120,000), you save roughly 17.5 cents in tax for every dollar sacrificed. At the 37% marginal rate, the saving is around 22 cents per dollar.
Your employer reduces your salary under a written arrangement. Most major employers accommodate salary sacrifice for super. Some smaller employers do not, so it is worth checking with your payroll team or HR before planning around it.
The concessional contributions cap
All concessional contributions, including your employer's SGC and any salary sacrifice you add, count toward a single annual cap. For FY2025-26, that cap is $30,000.
If your employer contributes 12% SGC on a $100,000 salary, that accounts for $12,000 of the cap. You could salary sacrifice up to $18,000 more before hitting the limit. Contributions above the cap are taxed at your marginal rate, so staying within the cap matters.
People with a total super balance under $500,000 may also be able to use unused cap amounts from the previous five years under the carry-forward rules, allowing larger one-off contributions in some years.
Potential benefits
- Lower income tax now. Reducing your taxable income immediately reduces the tax withheld from each pay cheque.
- More in super. The sacrificed amount, minus the 15% contributions tax, compounds inside your fund for potentially decades.
- Tax-advantaged investment growth. Earnings inside a super fund are taxed at 15% in the accumulation phase, lower than most people's marginal rate on investment income.
Potential risks and tradeoffs
- Reduced take-home pay. Sacrificing $5,000 per year does not cost $5,000 in take-home pay (because of the tax saving), but it does reduce the money available for everyday expenses.
- Locked away until preservation age. Super generally cannot be accessed until you reach your preservation age (currently 60 for most people) and retire or meet another condition of release.
- Less useful for low incomes. If your income falls in the lowest tax bracket (up to $18,200), taxable income is already taxed at 0%, so the 15% contributions tax would actually make salary sacrifice a worse outcome. Low-income earners may qualify for the Low Income Superannuation Tax Offset (LISTO) instead, which effectively refunds the contributions tax.
- High-income surcharge. If your income exceeds $250,000, concessional contributions attract an additional 15% tax (Division 293), reducing the effective saving.
Common misconceptions
"Salary sacrifice is only worth it for high earners"
The benefit is meaningful from the 32.5% bracket onwards, which starts at $45,001. Many full-time employees on average wages sit in this bracket and can benefit materially from salary sacrifice.
"I'm locking money away forever"
Super is accessible from age 60 for most people (preservation age depends on your birth year). It is locked away during your working life, which is different from being permanently inaccessible.
"Salary sacrifice and salary packaging are the same thing"
They often get used interchangeably, but salary packaging is a broader term covering various pre-tax benefits (novated car leases, laptops, etc.) depending on your employer. Salary sacrifice for super is a specific subset.
Frequently asked questions
Does salary sacrifice affect my employer's SGC contribution?
Since 2020, employers must calculate SGC on your ordinary time earnings, not your reduced salary after sacrifice. In most cases your employer SGC should remain the same, though it is worth confirming with your employer.
How do I set it up?
Contact your employer's payroll or HR team. They will require a written salary sacrifice agreement. The arrangement typically applies from the start of the next pay period and cannot be backdated.
Can I change or stop the arrangement?
Generally yes, with reasonable notice. The exact terms depend on your employer and the written agreement. Arrangements are usually flexible and not locked in permanently.
Is the amount I sacrifice shown on my income tax return?
Your employer reports salary sacrifice contributions as reportable employer super contributions (RESC) on your payment summary. These appear on your tax return and can affect calculations for various offsets and surcharges, even though they are not included in your taxable income.
What if I exceed the concessional cap?
Excess concessional contributions are included in your assessable income and taxed at your marginal rate (with a 15% offset for the contributions tax already paid). The ATO will issue an excess concessional contributions determination. Staying within the cap avoids this.
Use the Salary Sacrifice Calculator to estimate your personal tax saving based on your salary, sacrifice amount, and employer SGC rate. The Income Tax Calculator can show you your take-home pay before and after salary sacrifice.