Salary sacrifice into superannuation is one of the most tax-effective strategies available to Australian employees. By redirecting a portion of your pre-tax salary directly into your super fund, you pay 15% contributions tax instead of your marginal income tax rate — potentially saving thousands of dollars per year.
How Salary Sacrifice Super Works
- You agree with your employer to sacrifice a portion of your gross (pre-tax) salary into your super fund
- The employer pays the agreed amount directly to your super fund each pay period
- Your gross taxable salary is reduced — you pay less income tax and Medicare levy
- The sacrificed amount is a concessional contribution — taxed at 15% inside the fund (30% for Div 293 earners)
- Net benefit = your marginal tax rate minus 15%
Tax Savings — Worked Example
Employee earning $90,000, salary sacrificing $10,000/year:
| Without salary sacrifice | With salary sacrifice | |
|---|---|---|
| Gross income | $90,000 | $90,000 |
| Salary sacrifice amount | $0 | $10,000 |
| Taxable income | $90,000 | $80,000 |
| Estimated income tax + Medicare | ~$20,797 | ~$17,347 |
| Contributions tax in super (15%) | $0 | $1,500 |
| Total tax paid | ~$20,797 | ~$18,847 |
| Annual tax saving | — | ~$1,950 |
Figures are illustrative — actual tax depends on individual circumstances, deductions, and offsets.
Salary Sacrifice Tax Benefits by Income Level
| Income | Marginal rate (incl. Medicare) | Tax saving per $1 sacrificed |
|---|---|---|
| $18,201–$45,000 | 21% | 6 cents |
| $45,001–$135,000 | 34.5% | 19.5 cents |
| $135,001–$190,000 | 39% | 24 cents |
| >$190,000 | 47% (Div 293: 30%) | 17 cents |
Salary sacrifice is most effective for people in the 34.5% and 39% tax brackets — the middle and upper-middle income ranges.
How to Set Up Salary Sacrifice
- Check your employment contract and enterprise agreement — some agreements have restrictions
- Request a salary sacrifice arrangement with your HR or payroll team — most employers offer this
- Complete a salary sacrifice form specifying the amount ($X per pay period or per year)
- Provide your super fund details (fund name, ABN, account number, USI)
- Confirm the arrangement starts correctly — check your payslip after the first pay cycle
Salary sacrifice arrangements are typically reviewed annually or when your pay changes.
Important Considerations
Super Guarantee is calculated on base salary in most cases
Since 1 January 2020, employers can no longer use salary sacrifice to reduce the base on which they calculate the employer SG contribution. Your employer SG must be calculated on your ordinary time earnings before salary sacrifice (for most employees).
Both count toward the concessional cap
Employer SG contributions + salary sacrifice contributions must stay within the $30,000 concessional cap (FY2025–26). Calculate your remaining cap before setting a sacrifice amount.
Example: Employer contributes $11,500 SG. Maximum additional salary sacrifice = $30,000 – $11,500 = $18,500.
Cannot sacrifice below award wage
Salary sacrifice cannot reduce your take-home pay below the national minimum wage or your award/enterprise agreement rate. Check with your HR team.
Salary Sacrifice vs Personal Deductible Contributions
Both achieve a similar tax outcome — but salary sacrifice is automatic (set and forget), while personal deductible contributions require you to:
- Contribute from your bank account after receiving your salary
- Lodge a Notice of Intent with your super fund
- Claim the deduction in your tax return
Self-employed individuals cannot salary sacrifice — they use personal deductible contributions instead.
Related Articles
- Concessional Contributions Australia
- Super Contribution Limits Australia
- Catch-Up Concessional Contributions Australia
- How Much Super Do I Need to Retire?
- Retirement Investing hub
Frequently Asked Questions
How much should I salary sacrifice into super? This depends on your income, marginal tax rate, living expenses, and financial goals. A common starting point is to sacrifice enough to reach the $30,000 concessional cap, after accounting for employer SG. Balancing super contributions with other priorities (mortgage, investments) is important — super is preserved until preservation age.
Does salary sacrifice affect my borrowing capacity for a home loan? Yes — salary sacrifice reduces your gross taxable income, which may reduce your assessed borrowing capacity with some lenders (they assess on taxable income, not gross salary). Discuss this with a mortgage broker if you are planning to borrow.
Can I stop salary sacrifice at any time? You can generally vary or cease a salary sacrifice arrangement with appropriate notice to your employer (commonly one pay period or as per your employment agreement). It is not locked in.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.