By Philippa Billings, Chief Advice Officer, Otivo
Salary sacrifice gets talked about as a tax trick, but that framing misses the point. What it really changes is the order of operations on your pay. A dollar you salary sacrifice goes into super taxed at 15% before it's ever counted as your income. The same dollar taken as wages is taxed at your marginal rate first, and only what's left could go in afterwards. Here's how that works, who tends to benefit, and the cap that governs how much you can do it.
Salary sacrifice is an arrangement where part of your before-tax pay goes into your super instead of your bank account. It's generally taxed at 15% rather than your marginal rate, which can make it tax-effective. As at July 2026, salary sacrifice counts towards the $32,500 concessional contributions cap for 2026-27, alongside employer super guarantee and personal deductible contributions.
How does salary sacrifice into super work?
Salary sacrifice is an agreement with your employer to redirect a portion of your before-tax salary into your super fund rather than pay it as wages. Because the money never lands as taxable income, it's generally taxed at the concessional rate of 15% on the way into the fund, instead of at your marginal income tax rate. For most working Australians that marginal rate is higher than 15%, which is where the tax efficiency comes from. The arrangement needs to be set up in advance with your employer, since it applies to future earnings rather than money you've already been paid.
How much can you salary sacrifice into super?
There's a ceiling, and it's shared. The concessional contributions cap for 2026-27 is $32,500, and that single cap covers all your concessional contributions combined. Your employer's compulsory super guarantee, any salary sacrifice, and any personal contributions you claim a tax deduction for all count towards the same $32,500. So the room available for salary sacrifice is whatever's left after your employer's super guarantee is counted. Personal contributions you claim a tax deduction for also sit inside this cap, though claiming the deduction requires lodging a valid notice of intent with your fund and having it acknowledged. If you haven't used your full cap in recent years, you may be able to carry forward the unused amounts and contribute more in a later year, subject to eligibility.
Who does salary sacrifice tend to suit?
The higher your marginal tax rate, the larger the gap between it and the 15% contributions rate, and the more tax-effective salary sacrifice tends to be. For someone like a 38-year-old on $95,000, redirecting part of their pay into super means those dollars are taxed at 15% rather than the 30% or more they'd otherwise face. That said, the trade-off is access, since the money is preserved until retirement, so it tends to suit people who are comfortable locking those dollars away for the long term. Whether it makes sense in any individual case depends on income, expenses and how far off retirement is.
What about high income earners and Division 293?
There's a threshold where the maths shifts. Under Division 293, individuals whose combined income and concessional contributions exceed $250,000 in a financial year pay an additional 15% on the concessional contributions above that threshold, taking the tax on those contributions to 30%. Income for this test includes taxable income, reportable fringe benefits, net investment losses and the concessional contributions themselves. Even so, for someone on the top marginal rate, contributions taxed at 30% are still concessionally taxed compared with income taxed at their full rate, so salary sacrifice can remain worthwhile for high earners.
What are the trade-offs to weigh?
Salary sacrifice reduces your take-home pay, so it needs to fit your household budget. The contributions are preserved in super until you meet a condition of release, generally reaching age 60 and retiring, so they're not available for shorter-term needs. Going over the concessional cap has consequences too. The excess is added to your assessable income and taxed at your marginal rate, with a 15% offset for the tax the fund already paid, plus an excess concessional contributions charge. You can elect to release up to 85% of the excess from your fund to help cover the extra tax.
Frequently asked questions
Does salary sacrifice reduce my take-home pay?
Yes. Because you're redirecting part of your before-tax salary into super, your take-home pay falls by the after-tax value of the amount you sacrifice. The trade-off is more going into super at the concessional 15% rate.
Can salary sacrificing reduce my employer's super guarantee?
No. Since 1 January 2020, your employer's super guarantee must be calculated on your full ordinary time earnings before any salary sacrifice. Sacrificing salary can't be used to shrink the compulsory 12% your employer pays.
Is salary sacrifice better than making after-tax contributions?
It depends on your circumstances, and the two aren't mutually exclusive. Salary sacrifice uses before-tax dollars, while after-tax contributions use money you've already paid tax on, though some of those can be claimed as a deduction. The right mix varies from person to person.
What happens if I go over the concessional cap?
The excess is included in your assessable income and taxed at your marginal rate, with a 15% offset for tax the fund already paid, plus an excess concessional contributions charge. You can elect to release up to 85% of the excess from your super to help pay the additional tax.
Salary sacrifice is one of the more straightforward ways to build super, but the right amount is a personal calculation. Otivo, a licensed Australian financial advice platform holding AFSL and Australian Credit Licence No. 485665, offers a salary sacrifice contributions module that weighs up your employer contributions, income, age and household expenses to show whether sacrificing some salary makes sense for you. It takes the general idea and makes it specific.
Sources
- Australian Taxation Office — salary sacrificing super, concessional contributions cap, Division 293 tax and excess contributions — ato.gov.au
- ASIC MoneySmart — salary sacrificing super — moneysmart.gov.au
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.