Sending part of your pay into super before it reaches your bank account is one of the simplest tax strategies available to Australian employees. It is also one of the easiest to set up slightly wrong. Here is how it works, and when it stacks up.
Salary sacrifice gets tossed around in staff rooms and at the pub, usually by someone insisting it either saved them a fortune or was not worth the paperwork. Both can be true. Salary sacrifice super contributions redirect part of your before-tax pay into your super fund, where it is generally taxed at 15% rather than at your marginal income tax rate.
This is general information only, not personal financial advice, because the right answer depends on your income, your cash flow and your plans. Ironbark Wealth Advisers is a family-led firm based in Dubbo with over 35 years of experience, meeting clients in Dubbo, across Orange and surrounds, and Australia-wide via Zoom and Google Meet. If you are still getting your head around the basics, start with our guide to how superannuation works in Australia.
Quick summary
- Salary sacrificing means agreeing with your employer to redirect part of your before-tax pay into super, where it is generally taxed at 15% instead of your marginal rate.
- The benefit is the gap between those two rates, so the higher your marginal rate, the more each dollar does.
- Everything concessional shares one cap, $32,500 for 2026-27, and your employer’s compulsory contributions come out of it too.
- The money is locked away until you meet a condition of release, generally from age 60.
What Salary Sacrificing Into Super Means
Salary sacrificing into super is an agreement with your employer to pay part of your before-tax salary straight into your super fund instead of into your bank account. The money is treated as an employer contribution, it is taxed at 15% on the way in, and it never appears as salary in your tax return.
Salary Sacrifice Compared With a Personal Deductible Contribution
Salary sacrifice and personal deductible contributions end up in the same place and share the same cap, but they get there differently. Salary sacrifice runs through payroll, before you are paid. A personal deductible contribution is money you have already received, which you pay in yourself and then claim in your tax return. For that second route you must lodge a notice of intent to claim with your fund and receive written acknowledgement back, by the earlier of the day you lodge your return or the end of the following income year. Miss that step and the deduction is gone.
Your Employer Still Has to Pay the Full Super Guarantee
Salary sacrificing does not let your employer pay you less super, and your payslip will tell you. Since 1 January 2020, sacrificed amounts cannot count towards an employer’s super guarantee obligation, and the guarantee has to be calculated on your ordinary time earnings base, which includes the amounts you sacrificed. Your employer’s 12% is still worked out on what you would have been paid. If your super guarantee drops when your sacrifice starts, something has gone wrong in payroll.
How the Tax on Salary Sacrifice Works
Concessional contributions are taxed at 15% as they enter your fund. If your marginal tax rate is higher than 15%, the difference between the two rates is the benefit. If your marginal rate is close to 15%, there is very little in it, and the lock-up becomes a real cost for no real gain.
Why the Benefit Changes as Your Income Does
The tax benefit of salary sacrificing is not fixed, because your marginal rate is not fixed. A pay rise widens the gap and makes every sacrificed dollar work harder. Dropping to part-time hours narrows it, and a year out of the workforce can close it altogether. That is why the same arrangement suits one person and does almost nothing for the person beside them. It belongs alongside the rest of your superannuation strategy, not separate from it.
When Division 293 Changes the Maths
If your combined income and concessional contributions for Division 293 purposes come to more than $250,000 in a year, an extra 15% tax applies. It is charged on the lesser of the amount over the threshold or your taxable super contributions, taking the effective rate on those contributions to 30%. That is still below the top marginal rate, but the margin is thinner. Division 293 income is broader than your salary alone. It takes in:
- your taxable income
- reportable fringe benefits
- net financial investment losses
- net rental property losses
- some other items, including certain super lump sums
That breadth catches people who do not think of themselves as anywhere near the threshold. Check where you sit before you settle on an amount. It is common ground for high income earners.
The Caps on Concessional Contributions
For the 2026-27 financial year the concessional contributions cap is $32,500, up from $30,000 after indexation. One cap covers everything concessional going into all of your super funds combined, including a self-managed super fund. The Australian Taxation Office publishes the current figure on its concessional contributions cap page, and it pays to check the super contribution caps each July, because they move.
What Counts Towards the Cap
Four things count, and the first one surprises people:
- your employer’s compulsory super guarantee contributions
- any amounts you salary sacrifice
- personal contributions you claim as a tax deduction
- administration fees and insurance premiums your employer pays on your behalf
Your superannuation contributions to every fund you hold count towards the same cap. More accounts does not mean more cap.
Carry Forward Contributions and Five Years of Unused Cap
If your total super balance was under $500,000 at 30 June of the previous year, you can use unused cap from up to five previous financial years on top of the current year’s. Unused cap has been accruing since 2018-19, it expires after five years, and the oldest amounts are used first automatically. This matters more in the bush than most people realise. A strong season, a good stock sale or the sale of an asset can lift one financial year well above your normal income, and carry forward lets you contribute far more in that year than the annual cap alone would allow.
What Happens If You Go Over the Cap
Going over the concessional cap is not a disaster, but it is untidy. Excess concessional contributions are added to your assessable income and taxed at your marginal rate, with a 15% offset for the contributions tax the fund has already paid. The excess concessional contributions charge was removed from 1 July 2021. You can elect to release up to 85% of the excess to help pay the tax, and anything you leave in counts towards your non-concessional cap instead.
Not sure how much room you have left in your cap this year? That is a five minute conversation rather than a project. Give our Dubbo office a call and we will work it out with you.
Who Salary Sacrifice Super Contributions Tend to Suit
Salary sacrifice super contributions suit people whose marginal tax rate sits well above 15% and who will not need the money before they can access their super. Higher earners still building are the clearest case, though employer contributions on a strong salary can use up much of the cap before you sacrifice a cent. For people in their fifties and early sixties, contributions strategy and retirement planning become the same conversation, often alongside a transition to retirement strategy. If your income arrives in lumps, from harvest, stock sales or overtime, timing is the catch, because an arrangement has to be agreed before the income is earned. That makes it part of your tax planning well ahead of time. One caveat for farming families and contractors: this only works if you are an employee.
| Tends to stack up when | Harder to justify when |
|---|---|
| Your marginal rate sits well above 15% | Your marginal rate is close to 15% |
| You have spare cash flow after your regular commitments | You are saving for something you need in the next few years |
| You are within a decade or so of being able to access your super | Retirement is decades away and your priorities may still change |
| You have room in the cap, or unused cap to carry forward | Employer contributions already use up most of your cap |
The Trade-Offs Worth Weighing Up
The case against salary sacrificing is rarely about the tax. It is about access, the flow-on into other income tests, and getting the agreement in place at the right time.
The Money Is Locked Away
Once money is inside super, you generally cannot get it back until you meet a condition of release. For most people that means retiring or leaving a job from age 60, or turning 65 whether you are still working or not. Money sacrificed at 40 is money committed for two decades or more.
Salary Sacrifice Shows Up in More Places Than Your Tax Return
Sacrificed super is a reportable employer superannuation contribution, so it does not vanish from your income for every purpose. The ATO notes that salary sacrifice arrangements can affect the Medicare levy surcharge, compulsory study and training support loan repayments, some tax offsets, child support payments and some government benefits. For some households that is neutral. For others it is the deciding factor, and a simple online calculator will not always show it.
The Paperwork Has to Come First
An effective salary sacrifice arrangement has to be agreed before the work is performed. It cannot be applied to salary, leave, bonuses or commissions you have already accrued, and you must have no access to the sacrificed amount. You and your employer sign a document setting out the terms, and the records are kept for five years.
How Ironbark Works Through a Contributions Strategy
Ironbark follows the same five step advice process for every client, and a contributions question runs through all of it.
- Discovery. A conversation about your goals, financial position, lifestyle needs and future aspirations.
- Analysis and Research. Detailed analysis, using trusted research partners to review your options.
- Strategy and Recommendations. A tailored plan reflecting your goals, risk comfort and long term priorities.
- Implementation. We handle setup, applications, trades and paperwork, working with your accountant or solicitor where needed.
- Ongoing Support. Your adviser stays with you, reviewing and adjusting as your income and the rules change.
For salary sacrifice, most of the work sits in steps two and three: how much cap room you actually have, and whether the gap between 15% and your marginal rate is worth tying the money up for. There is more on how we work with clients at every stage.
Frequently Asked Questions
Is salary sacrificing into super worth it?
The most common misunderstanding is that salary sacrificing puts money into super tax free. It does not. The fund still pays 15% on the way in, so the value to you is only the difference between that 15% and the rate you would otherwise have paid on those same dollars. On a modest income that difference is small, and rarely enough on its own to justify locking money away for decades. On a higher income it can be substantial.
Does salary sacrificing reduce my take-home pay?
Yes, but by less than the amount you sacrifice. Because the sacrificed amount never gets taxed at your marginal rate, your tax bill falls at the same time as your gross pay does. Someone on a higher marginal rate will notice a smaller drop in take-home pay for the same contribution than someone on a lower rate.
Can I salary sacrifice into super if I am self-employed?
No. Salary sacrifice only works if you have an employer, so sole traders and partners in a partnership cannot use it. The equivalent is a personal deductible contribution, which you make yourself and claim in your tax return after lodging a notice of intent with your fund. It counts towards the same concessional cap.
Can I stop or change my salary sacrifice amount?
Yes, by agreement with your employer, though the change can only apply to income you have not yet earned. The practical step is to speak to payroll early rather than at the end of a pay cycle, since a variation agreed halfway through a period generally cannot be backdated over pay you have already accrued.
Can I still salary sacrifice into super after 67?
Generally yes. Your fund can accept salary sacrifice contributions while you are working. The work test that applies between 67 and 74 relates to claiming a deduction for a personal contribution, not to salary sacrifice. Once you turn 75, funds can only accept voluntary contributions, including salary sacrifice, up to the 28th day of the month following the month you turned 75.
Talk to Ironbark About Your Super Contributions
Salary sacrifice is a simple idea with a fair bit of small print attached, and the caps, thresholds and income tests all interact with the rest of your financial picture. The number to work out is not how much you could sacrifice, it is how much you should. We work alongside your accountant on exactly that question, so the tax side and the super side end up pulling in the same direction.
There is no pressure and no obligation. You are welcome to call us on (02) 6884 4680, send an enquiry through our contact page, or book a consultation at a time that suits you. Whether you would prefer to visit our Church Street office in Dubbo, have us come to you across Orange and the Central West, or meet online, we will work around what suits you best. You can also explore more guidance in the Ironbark Knowledge Hub.
This article was written by the team at Ironbark Wealth Advisers, a family-led financial planning firm with over 35 years of experience, supporting families and business owners across Dubbo, Orange and regional New South Wales. Ironbark Wealth Advisers Pty Ltd is a Corporate Authorised Representative (CAR No. 315227) of Madison Financial Group Pty Ltd, AFSL No. 246679. This article is general information only and does not take into account your objectives, financial situation or needs. Please consider the relevant Financial Services Guide (FSG) and Product Disclosure Statement (PDS) before making any decisions.
References
- Australian Taxation Office, Concessional contributions cap, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap
- Australian Taxation Office, Contributions caps (key superannuation rates and thresholds), https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps
- Australian Taxation Office, Division 293 tax on concessional contributions by high-income earners, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/division-293-tax-on-concessional-contributions-by-high-income-earners
- Australian Taxation Office, Salary sacrificing for employees, https://www.ato.gov.au/individuals-and-families/jobs-and-employment-types/working-as-an-employee/salary-sacrificing-for-employees
- Australian Taxation Office, GN 2020/1 Salary sacrifice and super guarantee, https://www.ato.gov.au/law/view/pdf/gdn/gdn2020-001.pdf
- Australian Taxation Office, Personal super contributions, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/personal-super-contributions
- Australian Taxation Office, Restrictions on voluntary contributions, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/restrictions-on-voluntary-contributions
- ASIC Moneysmart, Super contributions, https://moneysmart.gov.au/grow-your-super/super-contributions
