By Paul Feeney, Founder and Chief Executive Officer, Otivo
Every payday, each dollar you earn heads to one of two places first — your super fund or the ATO. Salary sacrifice is really a decision about that routing. Redirect a slice of before-tax pay into super and contributions are generally taxed at 15 percent on the way in, rather than your marginal income tax rate, which can run as high as 45 percent plus Medicare levy. (Some higher-income earners may pay additional Division 293 tax on part of their concessional contributions.) The name makes it sound like a loss. The mechanics tell a different story. Here's how the arrangement works, how the contribution caps operate, and the details that decide whether it stacks up.
Salary sacrifice is an arrangement where part of an employee's before-tax pay is directed into their super fund instead of being paid as wages. Contributions are generally taxed at 15 percent inside super rather than at the person's marginal rate, although higher-income earners may pay additional Division 293 tax. Salary sacrifice counts towards your annual concessional contributions cap together with employer Super Guarantee (SG) contributions and any personal contributions you claim as a tax deduction. The applicable cap can change over time, so it's important to check the current ATO limits for the relevant financial year.
How does salary sacrifice for super work?
The arrangement is set up with an employer, usually through a payroll form. The employee nominates an amount — a percentage or a fixed dollar figure per pay — and the employer sends that amount to the super fund before income tax is calculated on the rest.
Two things happen as a result. Taxable income falls, because the sacrificed amount never appears in take-home pay. And the super balance grows, with the contribution generally taxed at 15 percent inside the fund. For someone paying a marginal rate of 30 percent or more, the gap between those two tax rates is where the strategy earns its name recognition. A worthwhile protection to know about — since 2020, salary sacrificed amounts can't be used by an employer to reduce their compulsory SG obligation, which is calculated on the pre-sacrifice salary.
How much can be salary sacrificed?
There's no separate salary sacrifice cap — and this is the detail that catches people. Salary sacrifice shares one combined concessional contributions cap with employer SG contributions and any personal contributions claimed as a tax deduction.
The concessional contributions cap is indexed periodically by legislation. As at the 2025–26 financial year, the general concessional contributions cap is $30,000. If you're reading this for a later financial year, check the ATO's current concessional contributions cap before making additional contributions.
The practical arithmetic starts with SG. Someone earning $100,000 receives $12,000 of employer contributions at the 12 percent SG rate, leaving up to $18,000 of cap space under the current $30,000 cap for salary sacrifice or deductible contributions, assuming no other concessional contributions are made. People eligible for carry-forward concessional contributions may be able to contribute more by using unused cap amounts from up to five previous financial years, subject to eligibility rules.
What are the tax rules worth knowing?
Three deserve a place in any honest explanation — call them the three tax checkpoints of salary sacrifice.
The 15 percent contributions tax
Concessional contributions are generally taxed at 15 percent inside the fund. The saving comes from the difference between that and a person's marginal rate, which means the benefit is larger at higher incomes and smaller near the bottom of the scale.
Division 293 for higher earners
Individuals whose combined income and concessional contributions exceed $250,000 in a financial year pay an additional 15 percent tax on contributions above that threshold, taking the effective contributions tax rate to 30 percent. Income for this test includes taxable income, reportable fringe benefits, net investment losses and concessional contributions themselves. Even at 30 percent, contributions may still receive concessional tax treatment compared with the top marginal tax rate.
Excess contributions
Amounts over the cap are generally added to assessable income and taxed at the person's marginal rate, with a 15 percent tax offset recognising tax already paid by the fund. Tracking contributions through ATO online services helps avoid surprises.
An alternative route exists for people whose employers don't offer salary sacrifice — making a personal contribution and claiming a tax deduction. That path requires lodging a notice of intent with the fund before the earlier of the day the tax return is lodged or the end of the financial year after the contribution was made, and the fund must acknowledge the notice before the deduction can be claimed.
Does salary sacrifice suit everyone?
No single contribution strategy does. The money is preserved — locked away until a condition of release, typically reaching preservation age and retiring — so sacrificing pay that's needed for rent, debt repayments or a savings buffer can create pressure elsewhere. Many Australians find the strategy most comfortable once day-to-day cash flow has slack in it, and some prefer starting small, since arrangements can usually be adjusted with a payroll form.
Whether it makes sense for a particular person, and at what amount, depends on income, age, existing contributions and household expenses. Otivo's salary sacrifice advice considers these factors when providing regulated digital financial advice under AFSL and Australian Credit Licence No. 485665, helping eligible customers understand how different contribution strategies may affect their long-term retirement outcomes based on their individual circumstances.
Frequently asked questions
Does salary sacrifice reduce employer super contributions?
Not anymore. Since 1 January 2020, employers must calculate SG on the pre-sacrifice salary and can't count sacrificed amounts towards their SG obligation. Checking payslips confirms both amounts are flowing as they should.
Is salary sacrifice better than a personal deductible contribution?
They reach a similar tax outcome by different routes. Salary sacrifice happens automatically each pay, which suits people who prefer set-and-forget. Personal deductible contributions offer timing flexibility but require the notice of intent paperwork. Cash flow, employer payroll options and personal discipline usually decide it.
Can a salary sacrifice arrangement be changed or stopped?
Generally yes, prospectively — arrangements cover future earnings, not pay already earned. Most employers process changes through the same payroll channel that set the arrangement up, though notice periods vary by workplace.
Sources
- ATO — Salary sacrificing super. 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/salary-sacrificing-super
- ATO — 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
- ASIC MoneySmart — Super contributions. https://moneysmart.gov.au/grow-your-super/super-contributions
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.