Salary sacrificing is one of the most powerful and underutilised tax-saving tools available to Australian workers. By directing a portion of your pre-tax salary into superannuation, you pay just 15% contributions tax instead of your marginal rate — which could be 30%, 37%, or even 45%. The difference goes straight into growing your retirement nest egg. Yet despite the clear benefits, only about 15% of Australian employees take advantage of salary sacrifice arrangements. Here is everything you need to know to decide if it is right for you.
How Salary Sacrificing Works
The concept is straightforward. Instead of receiving your full gross salary and paying income tax on it, you arrange with your employer to redirect a portion into your super fund before tax is calculated. This reduces your taxable income and, consequently, the amount of income tax you pay.
For example, if you earn $100,000 and salary sacrifice $10,000 into super, your taxable income drops to $90,000. At the 30% marginal rate (plus 2% Medicare Levy), that $10,000 would normally cost you $3,200 in tax — but inside super, it is only taxed at 15%, costing $1,500. The tax saving is $1,700 on that single contribution.
The money goes into your super fund alongside your employer's Superannuation Guarantee contributions and is invested according to your chosen investment option. Use our superannuation calculator to model how additional salary sacrifice contributions compound over time towards your retirement target.
The Concessional Contributions Cap
There is a limit to how much you can salary sacrifice. The concessional contributions cap for FY2025-26 is $30,000 per year. This cap includes your employer's SG contributions (12% of your salary) and any salary sacrifice amounts. It does not include after-tax contributions, which fall under the separate non-concessional cap of $120,000.
On a $100,000 salary with 12% SG, your employer is already contributing $12,000 in concessional contributions. That leaves $18,000 of cap space for salary sacrifice before you hit the $30,000 limit. Exceeding the cap means the excess is added to your taxable income and taxed at your marginal rate, plus a charge for the tax already paid inside super.
If you have unused concessional cap space from previous years (going back up to five years), you may be able to carry forward that unused amount and make a larger contribution in a single year. This is particularly useful if you received a bonus or windfall and want to maximise your tax-effective super contributions. Check your available carry-forward amount through myGov.
Who Benefits Most from Salary Sacrifice?
The tax advantage of salary sacrificing is directly proportional to your marginal tax rate. The higher your rate, the bigger the saving. Here is how the numbers stack up for a $10,000 salary sacrifice contribution:
- Income $45,001-$135,000 (30% rate): Tax saving of $1,500 (pay 15% instead of 30%)
- Income $135,001-$190,000 (37% rate): Tax saving of $2,200 (pay 15% instead of 37%)
- Income $190,001+ (45% rate): Tax saving of $3,000 (pay 15% instead of 45%)
For someone in the 16% bracket (income $18,201-$45,000), the benefit is marginal — you save just 1% compared to the 15% super tax rate, and the trade-off is locking the money away until retirement. For low-income earners, the government's Low Income Super Tax Offset (LISTO) effectively reduces the super tax rate to zero on the first $500 of contributions tax, which is actually more generous than salary sacrifice.
Our salary calculator lets you compare your take-home pay with and without salary sacrifice arrangements to see the exact impact on your fortnightly pay.
Salary Sacrifice Beyond Super
While super is the most common salary sacrifice arrangement, you can also sacrifice into other benefits depending on your employer's policies. Common options include:
- Novated car leases: Lease a car through your employer using pre-tax dollars. The GST savings and income tax reduction can make a novated lease significantly cheaper than buying or financing privately. However, Fringe Benefits Tax (FBT) applies, and the net benefit depends on the vehicle price and your salary.
- Additional super contributions: As discussed above, the most straightforward and broadly beneficial option.
- Portable electronic devices: Laptops and tablets used primarily for work can sometimes be salary sacrificed, though the FBT exemption only applies to one device per FBT year.
- Not-for-profit packaging: If you work for a registered charity, public hospital, or eligible not-for-profit, you can salary sacrifice up to $15,900 per year in general living expenses (rent, groceries, bills) completely FBT-free. This is an extraordinarily generous concession that effectively boosts your after-tax income by up to $6,000 per year.
To understand how FBT interacts with salary packaging, check our fringe benefits tax calculator for a clear breakdown of the costs.
The Impact on Your Take-Home Pay
The key question for most people is: how much less will I take home each fortnight? The answer is less than you might expect, because the tax saving partially offsets the sacrifice.
Let us work through an example. On a $120,000 salary with no salary sacrifice, your approximate fortnightly take-home pay (after tax and Medicare Levy, before super) is $3,577. If you salary sacrifice $500 per fortnight ($13,000 per year) into super, your taxable income drops to $107,000 and your take-home pay falls to approximately $3,237.
The reduction in take-home pay is $340 per fortnight — not the full $500 — because you are saving $160 per fortnight in income tax. Meanwhile, your super balance is growing by $500 per fortnight ($13,000 per year) instead of the base SG contribution alone. Over 20 years at 7% average returns, that extra $13,000 per year compounds to approximately $570,000 in additional retirement savings.
Run your specific numbers through our salary calculator to see exactly how salary sacrifice affects your pay.
Common Traps and Pitfalls
Salary sacrificing is not without risks and complications. Be aware of these common issues:
- Exceeding the cap: Going over $30,000 in total concessional contributions triggers penalty tax. Track your contributions carefully, especially if you change jobs mid-year or have multiple income sources.
- Impact on borrowing capacity: Lenders assess your home loan application based on your gross salary minus salary sacrifice. A $15,000 salary sacrifice effectively reduces the income banks use to calculate your maximum loan by $15,000, which could cut your borrowing capacity by $60,000 to $90,000.
- Division 293 tax: If your income plus concessional super contributions exceed $250,000, an additional 15% tax (Division 293) applies to the super contributions, effectively doubling the contributions tax to 30%. It is still lower than the 45% marginal rate, but the benefit is reduced.
- Preservation rules: Money in super is locked away until you reach your preservation age (60 for most people). If you might need the funds sooner — for a home deposit, emergency, or career break — keep that in mind before sacrificing too aggressively.
The Bottom Line
Salary sacrificing into super is one of the simplest and most effective tax-saving strategies available to Australian workers earning above $50,000. The higher your marginal tax rate, the greater the benefit. Even modest contributions of $200 to $500 per fortnight can deliver thousands in annual tax savings and hundreds of thousands in additional retirement wealth over a career.
Speak to your employer's payroll team about setting up a salary sacrifice arrangement, check your concessional cap space through myGov, and model the impact on your take-home pay using our salary calculator and superannuation calculator. Your future self will thank you.