What Is Salary Sacrifice Super?
Salary sacrifice into superannuation (also called salary packaging) is an arrangement where you agree with your employer to redirect part of your pre-tax salary directly into your super fund. That money never hits your bank account. It goes straight to super, where it’s taxed at 15%.
Your marginal income tax rate on the same dollar of salary would be 19%, 32.5%, 37% or 45% plus the 2% Medicare levy, depending on what you earn. The gap between that rate and 15% is your tax saving.
Salary sacrifice contributions are classified as employer contributions by the ATO, which means they are not subject to fringe benefits tax. Your employer must still pay the full 12% Superannuation Guarantee on your ordinary time earnings, as if there was no salary sacrifice arrangement in place.
Source: ATO: Salary sacrificing super
How Much Tax Does Salary Sacrifice Save?
The higher your income, the more you save. Here’s how it plays out across common Australian income levels for 2025/26:
| Gross salary | Marginal rate (incl. Medicare) | Tax saved per $10,000 sacrificed |
|---|---|---|
| $45,001 to $120,000 | 34.5% | ~$1,950 |
| $120,001 to $135,000 | 39% | ~$2,400 |
| $135,001 to $180,000 | 41% | ~$2,600 |
| $180,001+ | 47% | ~$3,200 |
Source: ATO: Income tax rates 2025/26
A worked example:
Someone earning $100,000 has an employer SG contribution of $12,000 (12%). That leaves $18,000 of concessional cap space for salary sacrifice. If they use it:
- Taxable income drops from $100,000 to $82,000
- Income tax saving: approximately $6,660 (at a 37% marginal rate vs 15% inside super)
- Net super contribution: $18,000 minus 15% contributions tax = $15,300 into their balance
That $6,660 goes toward retirement instead of the ATO, every single year.
Please note: All figures, scenarios and examples in this article are approximate and for illustrative purposes only. Individual outcomes depend on personal circumstances, income, deductions and current tax law. This is general information, not personal advice.
The $30,000 Concessional Contributions Cap
All before-tax (concessional) super contributions count toward one combined annual cap. For 2025/26, that cap is $30,000 per person.
This includes:
- Your employer’s SG contributions (12% of your ordinary time earnings)
- Any salary sacrifice amounts
- Any personal contributions you claim as a tax deduction (more on this below)
To find your available salary sacrifice room, subtract your employer’s annual SG from $30,000. At $80,000, your employer contributes $9,600 and you have $20,400 left. At $150,000, employer SG is $18,000 and your remaining space is $12,000.
If you exceed $30,000, the excess is included in your assessable income and taxed at your marginal rate, less a 15% offset. You don’t lose the money, but you lose the tax advantage. Keep a close eye on your running total in your myGov ATO account throughout the year.
One trap worth knowing: If you change jobs mid-year, two employers may both be paying SG simultaneously. Combined with any salary sacrifice arrangement, it’s possible to accidentally exceed the cap. Check your contributions balance regularly if this applies to you.
You Don’t Need an Employer to Do This: Personal Deductible Contributions
Salary sacrifice is an employer arrangement, which means it’s not available to everyone. Self-employed people, contractors, freelancers and anyone whose employer doesn’t offer salary sacrifice can achieve a very similar tax result through a different route: personal concessional contributions.
The process works like this:
- Make a contribution to your super fund from your after-tax pay (your bank account)
- Lodge a Notice of Intent to Claim a Tax Deduction with your super fund before you lodge your tax return
- Your super fund taxes the contribution at 15% as a concessional contribution
- You claim a deduction on your tax return, reducing your taxable income the same way salary sacrifice would
The tax saving is identical. The difference is timing: salary sacrifice reduces your tax in every pay cycle, while a personal deductible contribution reduces your tax when you lodge your return, often as a refund or reduced tax bill.
For employees whose employer doesn’t offer salary sacrifice, this is the practical alternative. Speak to your accountant about the notice of intent process to make sure it’s completed correctly.
Source: ATO: Deductible personal super contributions
Catch-Up Contributions: An Urgent 2026 Deadline
If you haven’t been maximising your concessional cap in recent years, there’s an opportunity most Australians don’t know about.
If your total super balance was below $500,000 at 30 June of the previous financial year, you can carry forward any unused concessional cap space from the previous five years and use it all in a single year, on top of the standard $30,000 cap.
The urgent deadline: Unused cap space from the 2020/21 financial year (when the cap was $25,000) expires permanently on 30 June 2026. Once that date passes, it cannot be used. For someone who contributed only employer SG in 2020/21, that could be $10,000 to $20,000 of unused space available right now.
To check your available carry-forward amount: log into myGov, go to ATO Online Services, then Super, then Information, then “Carry forward concessional contributions.” The figure shown is what you can contribute on top of this year’s $30,000 cap.
Scott and Phil covered exactly this in Episode 7 of the Wealthlab Podcast: “The Superannuation Tax Strategy Most Australians Underuse”. Worth 20 minutes of your time.
This Strategy Is Particularly Valuable for Women
We covered the super gender gap in detail in Episode 17 of the Wealthlab Podcast, and the numbers are stark. The average woman retires two years earlier than the average man but lives four years longer. Career breaks for parenting and caring are still far more common for women, which means years of lower contributions and a widening gap.
Catch-up concessional contributions are one of the most direct tools available to address this. A woman returning to full-time work after several years part-time or out of the workforce may have significant unused cap space sitting in her ATO account. Combined with salary sacrifice going forward, using that catch-up space can substantially close the gap.
If you’ve had career breaks for any reason, checking your carry-forward balance in myGov before 30 June 2026 takes less than five minutes and could save thousands in tax.
Division 293 Tax: What High Earners Need to Know
If your income plus concessional contributions exceeds $250,000 in a financial year, the ATO applies an additional 15% tax known as Division 293 tax. This takes the effective tax rate on those contributions from 15% to 30%.
Even at 30%, salary sacrifice is worth doing if your marginal rate is 47%. The saving is smaller but meaningful. Division 293 tax is assessed after you lodge your tax return, and you can elect to pay it personally or have it deducted from your super account.
For high earners close to the $250,000 threshold, it’s worth checking whether adding salary sacrifice or personal contributions will tip you over, as this affects the calculation.
Source: ATO: Division 293 tax
How to Set Up Salary Sacrifice Super
Setting up salary sacrifice is simpler than most people expect.
Step 1: Check your employer offers it. Not all employers are required to provide salary sacrifice, though most do. Ask your HR or payroll team. If your employer doesn’t offer it, consider the personal deductible contributions route instead.
Step 2: Calculate your available cap space. Subtract your employer’s annual SG from $30,000. Also check myGov for any carry-forward amounts if you’re eligible.
Step 3: Agree on an amount in writing. Salary sacrifice must be documented before the relevant salary is earned. You cannot arrange it retrospectively for income already paid. Nominate a fixed dollar amount per pay period or a percentage of salary, and review it at the start of each financial year.
Step 4: Confirm your Tax File Number is on file with your super fund. Without a TFN, contributions are taxed at 47%. That defeats the entire purpose.
Step 5: Monitor your contributions through the year. Use your myGov ATO account to track the running total. This is especially important if you change jobs mid-year or receive an employer bonus that lifts your SG contributions unexpectedly.
From 1 July 2026: Payday Super begins. Employers will be required to pay super contributions every pay cycle rather than quarterly. This makes it much easier to track contributions in real time and reduces the risk of late or missed contributions.
Salary Sacrifice vs After-Tax Contributions: Different Jobs, Different Tools
Salary sacrifice and non-concessional (after-tax) contributions serve different purposes.
Salary sacrifice is a tax reduction tool: it lowers your taxable income now while building your super balance. The $30,000 annual concessional cap applies.
Non-concessional contributions use money you’ve already paid tax on. These have a separate annual cap of $120,000 and are not taxed entering the fund. They’re useful when you have a lump sum to move into super, such as proceeds from a property sale (particularly relevant to the downsizer contribution rules), an inheritance, or a redundancy payment.
Most Australians approaching retirement use both: maximising the concessional cap through salary sacrifice each year for the tax saving, then adding non-concessional contributions when larger amounts are available. Our superannuation advice page covers the full contribution strategy picture.
The Long-Term Impact on Your Retirement Balance
The immediate tax saving is real, but the compounding effect inside super is where the bigger long-term numbers come from.
Every dollar of tax saved through salary sacrifice and invested in super earns returns in a tax-advantaged environment. In pension phase, those earnings are tax-free. A consistent $5,000 to $10,000 annual tax saving invested over 15 or 20 years at reasonable returns compounds significantly.
The years between 50 and 65 are the highest-impact window for super contributions. Your income is often at its peak, your concessional cap space is available, and the time remaining before retirement is long enough for compound growth to work in your favour.
If you want to see how your numbers stack up, try the free Wealthlab super calculator to get a snapshot of where your balance is tracking against the retirement income you want.
Frequently Asked Questions
Does my employer still have to pay 12% super if I salary sacrifice?
Yes. Your employer must continue to pay the full 12% SG on your ordinary time earnings as if there were no salary sacrifice arrangement in place. Salary sacrifice is on top of, not instead of, your SG entitlement.
Can I salary sacrifice super if I’m self-employed or a contractor?
Not through the employer salary sacrifice route. But self-employed Australians can make personal contributions to super and claim a tax deduction, achieving the same tax result. Speak to your accountant about the Notice of Intent to Claim process.
What happens if I exceed the $30,000 concessional cap?
The excess is included in your assessable income and taxed at your marginal rate, with a 15% tax offset for contributions tax already paid. Any excess you don’t withdraw may also count toward your non-concessional cap. You won’t lose the money, but you lose the tax advantage. Watch your running total in myGov, especially if you change employers mid-year.
Does salary sacrifice affect my Age Pension entitlement?
Directly, it doesn’t change your Age Pension assessment during your working years. But increasing your super balance over time may affect the Age Pension assets test when you eventually retire. For most people approaching retirement, a larger super balance is the goal regardless. Whether the trade-off makes sense for your specific situation depends on your individual circumstances.
When must a salary sacrifice arrangement be in place?
It must be agreed with your employer and documented in writing before you earn the relevant income. You cannot retrospectively salary sacrifice income that has already been paid to you.
What is the difference between salary sacrifice and a personal deductible contribution?
Both are concessional contributions taxed at 15% in the fund. Salary sacrifice is arranged through your employer and reduces your taxable income each pay cycle. A personal deductible contribution goes in from your bank account after tax, and you claim the deduction on your tax return. The end tax result is similar; the difference is timing and who makes the contribution.
How do I check my carry-forward concessional cap balance?
Log into myGov, go to ATO Online Services, then select Super, then Information, then “Carry forward concessional contributions.” This shows your available catch-up amount on top of the current year’s $30,000 cap.
Want to Know If You’re Making the Most of Your Cap?
Salary sacrifice looks simple but the interaction between your employer SG, cap space, carry-forward amounts, Division 293 and your super balance can get complicated quickly. Most Australians leaving money in the concessional cap are leaving tax savings on the table.
If you want to work through whether you’re using this strategy as well as you could, book a free chat with the Wealthlab team. No sales pitch. Just clarity on where you stand.
