Understanding Salary Sacrifice in Australia

What is salary sacrifice?

Salary sacrifice (also called salary packaging for super) 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, your taxable income falls, and you pay less tax.

Inside the super fund, the contributed amount is subject to a 15% contributions tax. For most working Australians, that is substantially lower than their marginal income tax rate, which starts at 30% above $45,000. The difference between those two rates is your annual tax saving.

Salary sacrifice contributions are classified as concessional contributions, the same category as your employer's compulsory Superannuation Guarantee (SGC) contributions. Both count toward the same annual cap.

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, the salary sacrifice amount is removed before PAYG withholding is calculated.

The $10,000 goes directly to your super fund, where a 15% contributions tax ($1,500) is deducted, leaving $8,500 invested on your behalf. At your marginal rate of 30%, that $10,000 would have cost you $3,000 in tax and delivered only $7,000 in take-home pay. Through salary sacrifice, $8,500 ends up in super ($1,500 more), and your annual income tax bill falls by $1,500.

The net effect is that salary sacrifice costs less than it appears. Each dollar sacrificed reduces take-home pay by approximately 70 to 85 cents (depending on your marginal rate), not by the full dollar.

The tax saving by marginal rate

The benefit scales with your marginal tax rate. The higher your marginal rate, the larger the gap between what you would have paid as income tax and the 15% contributions tax rate:

• 30% marginal rate (income $45,001–$135,000): saving of 15 cents per dollar sacrificed
• 37% marginal rate (income $135,001–$190,000): saving of 22 cents per dollar sacrificed
• 45% marginal rate (income above $190,000): saving of 30 cents per dollar, but reduced by Division 293 (see below)
• 15% marginal rate (income $18,201–$45,000): saving of 0 cents per dollar, the same rate applies inside super, so there is no income tax benefit (though LISTO may refund the contributions tax for earners under $37,000)

The concessional contributions cap

All concessional contributions (your employer's SGC and any salary sacrifice), count toward a single annual cap. For FY2026–27, 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 can salary sacrifice up to $18,000 more before reaching the limit. Contributions above the cap are taxed at your marginal rate (with a 15% offset), so tracking your SGC contributions is important before deciding how much to sacrifice.

Carry-forward unused cap amounts

If your total super balance was below $500,000 on 30 June of the prior financial year, you can carry forward unused concessional cap amounts from the previous five years and contribute them in a single year. This allows people who were unable to contribute in earlier years, due to career breaks, lower income, or other reasons, to make a larger catch-up contribution when their circumstances change.

For example: if you only used $15,000 of the cap three years ago, the unused $15,000 (indexed) is available to use on top of your current year's cap.

Division 293 (high-income earners)

Individuals with income plus concessional contributions above $250,000 per year pay an additional 15% tax on their concessional contributions under Division 293. This brings the effective contributions tax rate to 30% for those earners, halving the benefit compared to the standard concessional rate.

At 30% contributions tax versus a 45% marginal rate, salary sacrifice still saves 15 cents per dollar at the top bracket, meaningful but less dramatic than for mid-range incomes.

Benefits

• Lower income tax now. Reducing your taxable income immediately reduces the PAYG tax withheld from each pay cheque.
• More in super. The sacrificed amount, minus the 15% contributions tax, compounds inside your fund (potentially for decades), at the fund's tax-advantaged earnings rate of 15%.
• Potential HECS reduction. Reducing taxable income may also reduce your required HECS repayment threshold if your income is close to a repayment band boundary.
• Medicare Levy Surcharge savings. If salary sacrifice reduces your income below $97,000 (the 2026–27 MLS threshold), you may avoid the 1% surcharge if you don't hold private hospital cover.

Risks and limitations

• Reduced take-home pay. Sacrificing $10,000 per year reduces take-home by approximately $7,000–$8,500 (depending on marginal rate), not zero, you do feel it in your pay.
• Locked away until preservation age. Super cannot generally be accessed until you are 60 and retired (or meet another condition of release). Salary sacrifice is unsuitable if you need access to those funds before then.
• Not available through all employers. Most major employers accommodate salary sacrifice for super, but some smaller employers do not. Check before planning around it.
• Not beneficial below $45,000. At the 15% marginal rate, the contributions tax and income tax are identical. Salary sacrifice provides no income tax saving and may disadvantage low-income earners without LISTO.

Common misconceptions

"Salary sacrifice is only for high earners"

The benefit is meaningful from the 30% bracket, which starts at $45,001. Many full-time employees on average wages are in this bracket. The Salary Sacrifice Calculator shows the exact saving at any income level.

"I'm locking money away forever"

Super is accessible from age 60 for most people (preservation age depends on birth year, but is 60 for everyone born after 1964). The money is locked during your working life, which is different from being permanently inaccessible.

"My employer's super contributions will decrease"

Not under current law. Since 1 January 2020, employers must pay SGC on ordinary time earnings regardless of salary sacrifice arrangements. Your employer's 12% SGC contribution should not change as a result of salary sacrifice.

"Salary sacrifice and salary packaging are the same thing"

Salary packaging is a broader term covering various pre-tax benefits, such as novated leases, laptops, and additional super. Salary sacrifice for super is a specific subset of salary packaging. The tax treatment differs by benefit type.

Frequently asked questions