Salary sacrificing into superannuation — redirecting part of your pre-tax salary directly into your super fund — remains one of the most effective tax strategies available to Australian employees. The core logic is simple: contributions taxed at 15% inside super rather than at your marginal income tax rate, which can reach 47% (including Medicare levy) for higher earners.
But the details matter. This guide covers 10 things you need to understand before you set up or review a salary sacrifice arrangement, including the traps that regularly catch people out.
How salary sacrifice works
When you enter a salary sacrifice arrangement, your employer pays an agreed portion of your pre-tax salary directly to your super fund as an employer contribution. Your taxable salary is reduced by that amount, so you pay less income tax. Inside super, the contribution is taxed at 15% as a concessional (before-tax) contribution — or 30% if your income exceeds $250,000 under the Division 293 rules.
Your employer receives a tax deduction for the contribution, the same as they would for paying you cash salary.
The practical tax saving for a typical professional on $120,000 sacrificing $10,000 per year, using FY2026-27 resident tax rates:
| Without salary sacrifice | With salary sacrifice | |
|---|---|---|
| Taxable salary | $120,000 | $110,000 |
| Income tax incl. Medicare (approx.) | ~$29,188 | ~$25,988 |
| Tax inside super | $0 | $1,500 |
| Net tax saving | — | ~$1,700 |
The saving grows with your marginal tax rate. At $120,000 the sacrificed dollars fall in the 30% bracket (32% with Medicare), so the benefit is 17% net of the 15% super tax. For employees in the top 47% bracket (including Medicare), the gap widens to 32 cents in every dollar sacrificed.
Salary sacrifice is a concessional contribution
All salary-sacrificed amounts count as concessional contributions. Your employer’s compulsory Superannuation Guarantee (SG) contributions — now 12% of Qualifying Earnings from 1 July 2025 — count toward the same cap.
For FY2026-27, the concessional contributions cap is $32,500 per year. This is the total of your employer SG contributions plus any salary sacrifice plus any personal deductible contributions. Keep an eye on your balance across all contributions — not just what you’re sacrificing.
Unused cap carry-forward
If your total super balance is below $500,000 on 30 June of the previous year, you can carry forward any unused concessional cap space from the prior five years and use it in a single year. This is a powerful catch-up tool for people who took career breaks, worked part-time, or simply didn’t maximise contributions in earlier years.
The ATO tracks your available carry-forward balance in your myGov account under the super section.
Two special cases: low and high earners
Low-income earners. If your adjusted taxable income is $37,000 or less, you may be eligible for the Low Income Superannuation Tax Offset (LISTO). This offsets the 15% contributions tax on concessional contributions up to $500 per year, ensuring low-income earners aren’t penalised for saving in super.
High-income earners. If your income plus concessional contributions exceeds $250,000, you pay an additional 15% tax — called Division 293 tax — on the concessional contributions that take you over the threshold. The ATO assesses this after you lodge your tax return and issues a separate notice. The strategy is still tax-effective for most high earners (30% vs up to 47%), but the saving is smaller.
Your employer doesn’t have to agree
Salary sacrifice is a voluntary arrangement between you and your employer. An employer is not legally required to offer it. If your employer won’t accommodate a salary sacrifice arrangement, you have an alternative: personal deductible contributions. You contribute after-tax money to your fund, then claim a tax deduction in your return. The end result is similar — the contribution is taxed at 15% inside super rather than at your marginal rate — though the timing differs.
The key administrative step: you must lodge a Notice of Intent to claim a deduction with your super fund before you lodge your tax return (or roll out funds, whichever comes first).
Get the arrangement in writing before it starts
A salary sacrifice agreement is a contractual arrangement. Put it in writing before contributions begin — and have both parties sign it. The agreement should specify:
- The amount or percentage to be sacrificed each pay period
- Timing — when will contributions be paid to the fund? Under payday super, employer SG must be paid on each payday from 1 July 2026, and most employers will pay salary sacrifice amounts at the same time
- What happens if your pay changes — will the dollar amount adjust or stay fixed?
Timing still matters at year-end. Payday super requires contributions to reach the fund within 7 business days of payday, so a late-June payrun can still land in your fund in early July — affecting your concessional cap calculations for both financial years.
The SG loophole — and how to protect yourself
A commonly overlooked issue: historically, employers could reduce their Superannuation Guarantee obligation when an employee salary sacrificed. If your salary package was expressed as “salary plus super,” an employer could argue that the salary sacrifice reduced the super base, lowering their SG obligation.
This loophole was closed by legislation effective from 1 January 2020. Employers can no longer use an employee’s salary sacrifice contributions to reduce their compulsory SG contributions. The SG calculation must be based on your Qualifying Earnings before the salary sacrifice reduction.
Check your payslips. If the SG amount falls after you start salary sacrificing, raise it with your payroll team or HR — it may be a system error rather than deliberate, but it’s worth catching early.
Watch your contributions cap closely
Breaching the concessional cap has tax consequences. Excess concessional contributions are included in your assessable income and taxed at your marginal rate — with a 15% offset for the tax already paid inside super. You can also elect to withdraw up to 85% of the excess to help cover the tax liability.
The situations most likely to cause an accidental breach:
- Employer changes your SG amount mid-year — e.g. after a pay rise
- Timing issues — salary sacrifice contributions paid in a different financial year than expected
- Multiple employers — each paying SG; the caps are cumulative across all funds
Your ATO myGov account shows year-to-date contributions. Check it at least quarterly if you’re running close to the cap. Your financial planner can model your contribution position across the full year.
Salary sacrifice can only apply to future income
You cannot salary sacrifice income you have already earned. The arrangement must be in place before the salary or bonus is payable to you.
This matters most for bonuses. If you want to sacrifice a performance bonus into super, the salary sacrifice agreement must be in place before the bonus is declared or you become entitled to it. An arrangement entered after entitlement has crystallised is ineffective and the ATO will treat the contribution as a non-concessional one made from after-tax dollars — potentially with no tax benefit.
Some employers use third-party salary packaging providers who charge a flat fee per transaction. If your employer pays salary-sacrificed contributions frequently (e.g. every pay cycle), those fees can erode the tax benefit for smaller contribution amounts. Ask about the fee structure before you commit to a high-frequency arrangement.
Salary sacrifice alongside an SMSF
For SMSF trustees, salary sacrifice integrates naturally with SMSF contribution strategies. Concessional contributions flow into your SMSF the same way as any other super fund, subject to the same $32,500 cap. Where SMSFs add flexibility is in investment direction — once contributions land in the fund, trustees control how they are invested.
Combined with the one-third CGT discount available inside super and the tax-free pension phase, salary sacrificed contributions can form part of a decades-long accumulation strategy that is difficult to replicate outside super.
What to do if you haven’t reviewed your arrangement lately
Super rules shift regularly — contribution caps index periodically, SG rates have stepped up to 12%, and carry-forward rules have been in place since July 2019 yet remain underused. If you set up a salary sacrifice arrangement more than two years ago and haven’t reviewed it, it’s worth checking:
- Are you still on track relative to the current $32,500 concessional cap?
- Are you capturing available carry-forward space?
- Has your income or employment changed in a way that affects the arrangement?
Our financial planning team can review your current arrangement against your broader tax position and retirement goals — including whether salary sacrifice, personal deductible contributions, or a combination makes most sense for your situation.