Salary sacrifice

What is salary sacrifice?

You can request that your employer makes contributions towards your superannuation fund from your pre tax salary, in addition to the compulsory contributions they will already be making. This is a sacrifice of salary.

Salary sacrifice is an attractive option for the following reasons

Comfortable retirement

The most significant benefit to making additional contributions to your superannuation fund, is that they will increase the funds available to you during your retirement. If you can sufficient disposable income to be able to afford to make extra contributions during your working life, you will be gratefulthat you made this decision when you reach retirement age.

Tax concessions

Salary sacrifices concessional contributions, as they are taxed at a concessional rate of 15% and not the marginal tax rate, which can be 19%, 32.5%, 37% or 47%; this can be a very attractive proposition for a high earner.

Salary sacrifice is deducted from your assessable income, which is then taxed at your marginal rate; the marginal tax will be lower, and offset by the concessional tax on the salary sacrifice amount. The net result will be a reduction in tax payable. An example is listed below.

Concessional caps

Concessional contributions include both the employer compulsory contributions and the salary sacrifice contributions, and there is a limit on the concessional contributions that can be made to a superannuation fund.

The threshold is for concessional contributions is $30,000, rising to $35,000 for those over the age of 50, and contributions up to that level enjoy a concessional tax rate of 15% (30% if earnings exceed $30,000).

Due to the tax concession made on these superannuation contributions, any overpayment of concessional contributions will be penalised, otherwise it would be subjected to wide scale abuse by those with the funds to do so. Should contributions exceed the threshold they will be taxed at your marginal rate; in addition to the additional tax, an interest charge on the excess amount will also be levied.

Employer involvement

Before considering salary sacrifice, you will need to liaise with your employer as they may not offer this service, and are under no obligation to make these contributions on your behalf.

Your employer is entitled to make superannuation guarantee contributions based on your reduced salary, though the sacrifice contribution will count towards the employer’s obligations. If you wish your contributions to be made in addition to those made on your whole salary amount, you will need to discuss this directly with your employer and agree the terms on which salary can be sacrificed; the terms under which the contributions are made need to be clearly understood and confirmed in writing.

Your employer must declare all of the superannuation contributions made on your behalf.


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