By Paul Feeney, Founder and Chief Executive Officer, Otivo
A small super rule changed on 1 July, and most Australians probably didn't notice. But for anyone making extra super contributions, it opened another $2,500 of tax-effective investing each year. Here's what it means and how much it could be worth by retirement.
What could an extra $2,500 a year become by age 65?
Picture a hypothetical 40-year-old. Call her a project manager on a good salary, already contributing at the old $30,000 cap through a mix of employer contributions and salary sacrifice. On 1 July, without her doing anything, $2,500 of new headroom appeared. Suppose she claims it — redirecting an extra $2,500 of before-tax salary into super each year until she turns 65.
The arithmetic runs like this. After the 15% contributions tax, $2,125 lands in her fund each year. Assuming a 7% per annum nominal return before fees, held constant for 25 years purely for illustration, those extra contributions could grow to roughly $134,000 by age 65.
That figure isn't a promise — markets don't deliver the same return every year, fees differ between funds, and the assumptions here are deliberately simple. But it shows the shape of the mechanic: a modest annual amount, given a quarter of a century to compound, can become a meaningful slice of a retirement balance. For scale, the most recent ASFA Retirement Standard puts the lump sum a single person needs at 67 for a comfortable retirement at roughly $595,000. An amount in the order of $134,000 is more than a fifth of that — from a change she didn't even have to ask for.
How does the 15% contributions tax stack up against marginal rates?
Here's the engine under the story. Concessional contributions are generally taxed at 15% inside the fund, rather than at the member's marginal income tax rate. For someone on the top marginal rate of 47% (including the Medicare levy), the same $2,500 loses $1,175 to tax as salary but only $375 as a super contribution — around $800 a year that stays working for retirement instead of going to the ATO. The saving scales with the marginal rate, so it's smaller for middle-income earners and close to nil at the lowest rates.
Now the twist. There's a quiet line in the tax system at $250,000 — and this is where the top-rate earner's picture gets more complicated. Under Division 293 tax, individuals whose combined income and concessional contributions exceed $250,000 in a financial year pay an additional 15% on concessional contributions above the threshold, taking the rate to 30% rather than 15%. And "income" for this test is broad: taxable income, reportable fringe benefits, net investment losses, and the concessional contributions themselves all count. Since the top marginal rate begins at $190,000 of taxable income, a meaningful share of the very people eyeing that $800 saving will cross the Division 293 line once their contributions are added in.
The twist has a consolation, though. Even at 30%, the contributions remain concessional — still 17 percentage points below the 47% those earners pay on salary. Division 293 trims the benefit; it doesn't erase it.
The three doors into the concessional cap
The $32,500 cap is a single combined limit, not three separate ones — all three contribution types count towards it together, and headroom is whatever remains after all of them are tallied.
- Employer super guarantee (SG) — the compulsory 12% of ordinary time earnings employers have paid since 1 July 2025. For most people, the biggest slice of the cap by far.
- Salary sacrifice — an arrangement where part of before-tax pay is redirected into super instead of being paid as wages.
- Personal deductible contributions — a contribution made in the member's own name, with a tax deduction claimed at tax time. To claim the deduction, a valid notice of intent must be lodged with the fund before the earlier of the day that year's tax return is lodged or the end of the following financial year, and the fund must acknowledge the notice before the deduction can be claimed.
Because SG walks through the first door automatically, the practical headroom varies with salary. Our 40-year-old on $150,000 receives $18,000 in SG, which leaves up to $14,500 of the 2026–27 cap available through the other two doors.
Can unused cap from previous years be stacked on top?
Yes — and this is where the numbers get genuinely large. The carry-forward rule is the reason the general cap isn't a flat ceiling. The mechanics work like this:
- Available since 1 July 2018.
- Unused concessional cap amounts can be carried forward for up to five financial years.
- Unused amounts are applied oldest-first and expire after five years.
Eligibility is separate from the mechanics, and all three conditions must be met:
- A total super balance (TSB) below $500,000 on 30 June of the prior financial year.
- Unused concessional cap space in one or more of the previous five financial years.
- Being eligible to make super contributions — generally under age 75, though funds can accept contributions up to 28 days after the end of the month a member turns 75.
Based on the ATO's published caps, someone eligible in 2026–27 who used almost none of their cap over the past five years could contribute up to $175,000 in concessional contributions in a single year — the $32,500 current cap plus $142,500 of accumulated unused space. For people with uneven income years — a business sale, a return from parental leave, an inheritance directed towards retirement — that's a door most don't know exists.
Frequently asked questions
Does the $32,500 cap include employer contributions?
Yes. The concessional cap covers employer SG, salary sacrifice and personal deductible contributions combined. It's a common misconception that SG sits outside the cap — it doesn't, and for higher earners it can consume a large share of it.
Do salary sacrifice arrangements adjust automatically when the cap changes?
Not necessarily. Many arrangements are set as a fixed dollar amount per pay cycle, which means a cap increase doesn't flow through on its own. Reviewing an arrangement at the start of a financial year is something many Australians find useful, particularly after an indexation year like this one.
When will the cap increase again?
There's no fixed date. The cap steps up only when AWOTE growth accumulates another full $2,500, so the gap between increases depends on wage growth — the last two steps came two years apart, but earlier gaps ran to three years or more.
So the quiet change of 1 July has a loud ending, at least for those who notice it. Working out how much of the new cap space is genuinely usable — after SG, within a household budget, and with Division 293 in the picture — is where a projection tool earns its keep. Otivo's salary sacrifice contributions module weighs employer contributions, contribution limits, age, income and household expenses, and its tax-deductible personal contributions module helps people figure out eligibility and whether claiming a deduction makes sense. Otivo holds AFSL and Australian Credit Licence No. 485665, and when customers follow its advice on contributions in full, they could be better off by an average of $180,356 in today's dollars by retirement.
Sources
- Australian Taxation Office — Contributions caps. ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps
- Australian Taxation Office — Division 293 tax. ato.gov.au
- Australian Bureau of Statistics — Average Weekly Earnings, December quarter 2025.
- ASFA Retirement Standard — most recent quarterly release.
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.