What Is Salary Sacrifice Into Super?
Salary sacrifice means agreeing with your employer to redirect a portion of your pre-tax salary into your superannuation fund instead of receiving it as take-home pay. Because the money goes into super before income tax is applied, it's taxed at the concessional rate of 15% inside the fund rather than at your marginal income tax rate โ which could be 32.5%, 37%, or 45%.
The result: the same dollar does more work for your retirement when routed through super than when it passes through your hands as salary first.
Use our Super Contribution Calculator to model the exact numbers for your situation.
The Tax Maths
Here's a simple example. Say you earn $95,000 a year and you're in the 32.5% marginal tax bracket. You decide to salary sacrifice $10,000 into super for the year.
- Without sacrifice: that $10,000 becomes ~$6,750 in your bank account after tax
- With sacrifice: that $10,000 goes into super, taxed at 15%, leaving $8,500 invested for retirement
- Benefit: an extra $1,750 working for your retirement on the same gross salary
The higher your marginal rate, the larger the benefit. At the 47% rate (including the Medicare levy), you keep just $5,300 in hand โ salary sacrifice captures $3,200 more per $10,000 contributed.
Concessional Contributions Cap
All concessional (pre-tax) contributions โ including your employer's compulsory Super Guarantee contributions โ count toward the cap. For 2024-25, the concessional cap is $30,000 per year.
This means if your employer contributes 11.5% of a $95,000 salary ($10,925), you have room for an additional $19,075 in salary sacrifice before hitting the cap. Go over and the excess is included in your assessable income and taxed at your marginal rate plus an excess concessional contributions charge.
The Carry-Forward Rule
If your total super balance was below $500,000 at 30 June of the previous financial year, you can use unused concessional cap amounts from the previous five years. This is particularly useful if you've had career breaks, periods of lower income, or are now in a higher-earning phase and want to catch up on super.
How to Set Up Salary Sacrifice
- Check your employment contract โ some awards or agreements restrict salary sacrifice arrangements
- Contact your payroll or HR department and request a salary sacrifice agreement in writing
- Specify the amount (fixed dollar amount or percentage of salary) and confirm the arrangement before your next pay period
- Review annually โ your sacrifice amount doesn't auto-adjust if your salary increases
Effect on Take-Home Pay
Because salary sacrifice reduces your taxable income, the reduction in take-home pay is always less than the amount you sacrifice. If you sacrifice $500/month, your take-home pay might only fall by $335 at the 32.5% rate โ because you're no longer paying $165 in tax on that portion.
Run the Take-Home Pay Calculator before and after to see your exact position. Then use the Super Balance Growth Calculator to project the compounding effect over your remaining working years.
Other Considerations
Insurance inside super. Many people hold life and TPD insurance through their super fund. Salary sacrifice increases the balance, which can indirectly support these arrangements.
Low Income Super Tax Offset (LISTO). If you earn under $37,000, you may receive a government co-contribution that partially offsets the 15% contributions tax โ making salary sacrifice even more efficient at lower incomes.
Spouse contributions. If your spouse earns under $40,000, contributing to their super (from your after-tax income, not salary sacrifice) may attract a tax offset of up to $540.
For a structured introduction to Australian personal finance and superannuation strategy, finance books covering Australian super strategy are available on Amazon AU and can help you build a complete picture alongside the calculators.
Is Salary Sacrifice Right for You?
It's almost always worth it if you're above the 19% tax bracket and you don't urgently need the income now. The compounding effect of extra super contributions over a 20โ30 year career is substantial. Use the Super Balance Growth Calculator to see what an extra $5,000 per year in contributions does to your balance at retirement โ the numbers are usually persuasive.