Salary sacrifice into super — explained

What is salary sacrifice?

Salary sacrifice (also called “salary packaging super”) is an arrangement with your employer where a portion of your gross salary is paid directly into your super fund instead of your bank account. Because super contributions are taxed at 15% instead of your marginal income tax rate (up to 45%), you end up with more money in total — it just sits inside super until you retire.

A worked example

Sarah earns $110,000. Her marginal tax rate is 32% (30% plus 2% Medicare). She decides to salary sacrifice $15,000 into super.

• Take-home pay reduction: about $10,200 per year (~$196 a week)
• Contributions tax (15%): $2,250
• Net amount into super: $12,750
• Extra dollars she’s created from nothing: $2,550 per year

Over 20 years at 6.7% net return inside super, that annual $2,550 benefit compounds to roughly $103,000 extra at retirement. That’s not money she earned more of — it’s money she would have paid in income tax.

The $30,000 concessional cap

The concessional contributions cap for FY25–26 is $30,000. That’s the total of everything taxed at 15% going into your super — your employer’s SG (currently 12%), any salary sacrifice, and any personal deductible contributions combined.

On a $110,000 salary, SG alone is $13,200. That leaves room for $16,800 of sacrifice before you hit the cap. Go over and the excess gets taxed at your marginal rate less a 15% offset — still not disastrous, but you lose the main advantage.

Carry-forward: unused cap rolls forward 5 years

If your total super balance was under $500,000 at 30 June last year, you can use unused concessional cap from the previous five financial years. So if you contributed only $10,000 a year for the past five years, you’ve got around $100,000 of extra cap sitting there. This matters hugely if you had a low-income phase (parental leave, study, self-employment start-up years) and now earn more.

Division 293: the tax for high earners

If your income plus concessional contributions is above $250,000, Division 293 adds another 15% tax on the concessional portion that pushed you over. Your super still wins — you’re paying 30% total on contributions vs 47% if taken as salary — but the gap narrows. The ATO issues a Div 293 assessment after your tax return; you can pay from your super fund or from cash.

How to set it up

1. Write to your employer. A short email is enough: “From the next pay cycle, please redirect $X per pay period from my gross salary into my nominated super fund as a pre-tax contribution.”
2. Confirm it’s pre-tax. Your payslip should show the sacrifice as a deduction from gross, not net, salary.
3. Check your super fund receives it. Contributions should land inside 28 days of the end of the quarter.
4. Review annually. The SG rate, your salary, and the concessional cap all change over time.

Traps that cost people money

• Going over the cap without checking carry-forward. Excess contributions still earn returns in your super, but you lose the big tax advantage.
• Double-counting with personal deductible contributions. They come from the same cap.
• Forgetting SG is based on OTE. Some employers reduce SG when you sacrifice — check your agreement.
• Locking up emergency cash. Super is preserved until 60 (for most). Don’t sacrifice so hard you can’t handle a surprise vet bill.

Salary sacrifice vs personal deductible contributions

Since 2017, employees can also make personal contributions and claim them as a tax deduction — same 15% tax, same cap. It’s more flexible (do it once a year, close to 30 June) but requires you to submit a Notice of Intent to Claim form. For most people, salary sacrifice is simpler because it’s automatic.