Salary Sacrificing Into Super: How It Works
Salary sacrifice lets you redirect some of your pre-tax salary into your super fund instead of receiving it as take-home pay. Because it's arranged before tax is calculated, and super contributions are typically taxed more lightly than your marginal income tax rate, it can mean more money ends up working for you long-term for the same amount given up today.
The mechanics
You agree with your employer to have a set amount (a dollar figure or percentage) deducted from your salary before tax and paid into your super fund as an additional employer contribution, on top of the compulsory Super Guarantee. That amount is generally taxed at 15% inside super (rather than your marginal income tax rate, which for many people earning a middle or higher income is well above that), and it counts toward your concessional (before-tax) contributions cap alongside your employer's SG contributions.
A simple worked example
As a general illustration: for someone in a tax bracket where their marginal rate, including the Medicare levy, is well above 15%, salary sacrificing $200 a fortnight means that amount is taxed at 15% inside super instead of at the marginal rate — the higher the marginal rate, the bigger the relative saving, though the money is then locked away until a condition of release is met (generally retirement or reaching preservation age). This trade-off — tax efficiency now, reduced access until retirement — is the core decision behind salary sacrifice. Working out what this looks like for your own income and goals is best done with a licensed adviser or your fund's calculator, rather than from a generic example like this one.
Why the contribution cap matters
Salary sacrifice contributions count toward the concessional contributions cap, along with your employer's compulsory SG payments and any other before-tax contributions. Exceeding the cap can mean the excess is taxed at your marginal rate anyway (effectively removing much of the benefit) and included in your assessable income. See Contribution Caps Explained for exact figures and how "carry-forward" unused cap amounts can work if you've had gaps.
Who tends to benefit most
Salary sacrifice generally suits people on higher marginal tax rates, people with spare income after other financial priorities (like high-interest debt or an emergency fund) are covered, and people who are comfortable having that money inaccessible until retirement. It tends to suit someone later in their career more than someone with a very tight budget early on, though even modest, regular amounts can add up meaningfully over a long time horizon.
Things to check before starting
Confirm with your employer's payroll that salary sacrifice arrangements are set up correctly (it should reduce your ordinary salary, not just be an after-tax deduction, which is taxed differently), check your total concessional contributions for the year including your employer's SG payments, and consider whether the First Home Super Saver Scheme changes the calculus if you're saving for a deposit — see First Home Super Saver Scheme, Explained. Because the right amount (if any) depends on your income, tax position and other financial priorities, a licensed financial adviser or your fund's own contribution calculator is the best place to get a figure tailored to your situation.
Frequently asked questions
Is salary sacrifice the same as making a personal contribution?
No — salary sacrifice is arranged with your employer before tax; personal (after-tax) contributions are made yourself and may be eligible for a tax deduction claimed at tax time instead.
Can I stop salary sacrificing at any time?
Generally yes, by agreement with your employer, though check your specific arrangement.
What happens if I go over the concessional cap?
The excess is generally added to your assessable income and taxed at your marginal rate, with an additional charge — see Contribution Caps Explained for how the ATO handles this.
Confirm current contribution caps and tax rates on ato.gov.au before publishing or acting on this.
This article contains general advice only. It has been prepared without taking into account your personal objectives, financial situation or needs, and does not constitute a recommendation to acquire, hold, or dispose of any financial product. Before acting on this information, consider its appropriateness to your own circumstances, and seek independent financial, tax and/or legal advice, or speak with a licensed financial adviser, before making any decision.
