Quick Look
Focus: How salary sacrifice into super can reduce your tax and increase long-term savings
Key Takeaways :
Salary sacrifice into superannuation is one of the most tax-effective strategies available to working Australians. Done right, it can help you pay less tax now and grow your retirement savings faster.
But like any strategy, it’s not one-size-fits-all. If you earn too little—or too much—or forget to check your caps, it can backfire. Here’s how it works, who it suits, and where the pitfalls lie.
Australians pay income tax based on marginal tax rates. The more you earn, the more tax you pay on each additional dollar. But salary sacrifice allows you to redirect some of your pre-tax salary into super, where it’s taxed at just 15%—potentially much lower than your usual rate.
The catch?
So, the question becomes: how much can you contribute without hurting your cash flow or
breaching the rules?
Step 1: Know your tax rate
If your income is:
Pensioner nil rate Medicare threshold is $43,020 or $45,907 for a family & $59,886 for family pensioners. Redirecting some of that income into super, where it’s taxed at 15%, can mean big savings.
Example: Lisa earns $100,000.
Tax saved: ≈ $2,000 and $8,500 goes into super
Step 2: Stay under the cap
The concessional contributions cap is $30,000 per financial year (ATO, updated 1 July 2025). This includes:
Tip: If your employer is already contributing $12,000 (12% of $100,000), that leaves $18,000 room for extra salary sacrifice.
Step 3: Adjust carefully
Before: Raj earns $85,000. He’s paying ≈ $18,000 in tax, and his employer contributes $10,200 into super. He’s not making any extra contributions.
After: Raj starts sacrificing $8,000 per year. His taxable income drops to $77,000 Income tax falls to ≈ $15,500 Super fund receives $8,000 pre-tax (pays $1,200 tax)
Net gain: approximately $1,300 tax saved, $6,800 more in super, and only an approximate $5,300 drop in take-home pay
Outcome: By giving up $100 a week, Raj grows his super faster and pays less tax overall. If Raj is 37, at an net earning rate of 6% pa, that $100 per week could grow to $270,000 (in today’s dollars assuming 2.5% inflation) by the time he is 67. While he has given up $156,000 take home pay over that period, he is $113,000 better off.
Won’t I lose access to that money?
Yes—until you reach your preservation age(between 55–60) and retire or meet another release condition. It’s a long-term move.
What if I go over the cap?
You may be taxed at your marginal rate plus an excess contributions charge. The ATO usually allows you to withdraw the excess, but it’s best to avoid it.
Can I stop or change it later?
Yes. Salary sacrifice arrangements aren’t locked in—you can change or cancel through your employer or make additional contributions yourself and claim the deduction each year.
Is it worth it on a lower income?
Sometimes. If your marginal rate is under 16%, the benefit shrinks. You might consider a co-contribution instead—the government may match your after-tax contributions up to $500 depending on your income.
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Salary sacrifice is a proven way to cut tax and boost your super—especially if you’re in the 30% or 37% tax brackets. The key is to balance the tax savings with your lifestyle needs and always stay under the contribution cap. A little planning now can mean a lot more freedom in retirement.
Thinking about contributing to super from your pre-tax salary?
moneyGPS helps you understand how salary sacrifice could improve your long-term position, including:
Available online for $198. Start free and access the advice when you’re ready.
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Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.
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