How Salary Sacrifice Can Save You Thousands in Tax Every Year
Salary sacrifice is a simple agreement between you and your employer to direct part of your before-tax income into your super fund. The contribution goes in before income tax is calculated, meaning you're taxed less on your take-home pay — and the money entering super is taxed at just 15% instead of your marginal tax rate (which could be up to 45%).
Example: If you earn $90,000 and salary sacrifice $10,000 into super, that $10,000 is taxed at 15% ($1,500) rather than your 32.5% marginal rate ($3,250). That's a tax saving of $1,750 in a single year — while increasing your super balance by $8,500.
The 2025 Contribution Cap
From 1 July 2024, the concessional contribution cap increased to $30,000 per financial year. This cap includes:
Employer Super Guarantee (SG) contributions (12% from 1 July 2025)
Any salary-sacrifice amounts
Personal deductible contributions you claim in your tax return
Exceeding this limit can trigger excess-contribution tax, so it's important to track your total contributions through myGov → ATO → Super before adding more.
If you haven't used your full cap in previous years and your total super balance is under $500,000 at 30 June of the previous financial year, you can also use carry-forward (catch-up) concessional contributions to contribute more. Unused amounts are available for a maximum of 5 years, after which they expire.
Why It's So Tax-Efficient
Super contributions made through salary sacrifice are taxed at a flat 15% contributions tax, far lower than most personal income tax rates. This difference means:
More money invested — less lost to tax
Compound growth inside super on a larger base
Potential eligibility for tax offsets or reduced Medicare levy surcharges due to lower taxable income
For high-income earners (where income plus concessional contributions exceed $250,000), Division 293 tax applies, adding an extra 15% on the portion of concessional contributions above that threshold. Even then, the total tax rate of 30% is still below the top marginal income rate of 47%.
Understanding the Tax Calculation
It's important to understand exactly how the tax works:
Without salary sacrifice:
$10,000 pre-tax income → taxed at your marginal rate (e.g., 32.5%) → you receive $6,750 after tax
With salary sacrifice:
$10,000 goes into super → taxed at 15% → $8,500 lands in your super account
Net benefit: $1,750 more working for your retirement
The key advantage is that 15% is significantly lower than the marginal tax rates most working Australians pay (ranging from 19% to 45%, plus the Medicare levy).
Setting It Up Correctly
To start salary sacrificing:
Contact your employer: Ask your payroll or HR team if they have a salary-sacrifice arrangement form. Most employers have a standard process in place.
Decide on an amount: Choose either a fixed dollar figure per pay period or a percentage of your income. Consider starting small if you're unsure about the cash flow impact.
Confirm details: Provide your super fund details and ensure contributions are classified as employer contributions (not after-tax), so they receive the 15% concessional tax treatment.
Monitor regularly: Check your payslips to ensure the salary sacrifice is being deducted correctly, and review your annual super statement to confirm contributions are being received.
You can adjust or stop salary sacrifice at any time by notifying your employer — it's flexible, but making changes early in the financial year can help maximize the benefit and avoid exceeding the cap.
What's Included in Your Concessional Cap?
It's critical to understand that all concessional contributions made to all your funds during a financial year are added together and counted towards your concessional contributions cap. This includes:
Employer SG contributions (12% of your ordinary time earnings from 1 July 2025)
Salary sacrifice amounts
Personal contributions you claim as a tax deduction (requires lodging a Notice of Intent with your fund)
Important timing note: Contributions count towards a cap in the year your super fund receives them, not when they're deducted from your pay. This is particularly relevant for contributions made near the end of the financial year.
Things to Watch Out For
Cash-Flow Balance
Sacrificing too much can reduce take-home pay, so strike a balance between saving tax and maintaining your lifestyle cash flow. Consider your regular expenses, mortgage or rent payments, and emergency savings before committing to a salary sacrifice amount.
Cap Management
Remember to include all employer contributions when calculating your total concessional contributions. If you have multiple jobs or changed employers during the year, track contributions across all sources carefully.
Insurance Inside Super
Higher contributions won't automatically increase your insurance cover. If you're relying on insurance through your super fund (life, TPD, or income protection), review your insurance settings to ensure they remain aligned with your needs.
Impact on Other Benefits
Reducing your taxable income through salary sacrifice may affect:
Eligibility for certain government benefits or Family Tax Benefits
Child support calculations
Loan serviceability assessments for home loans
Reportable contributions (salary sacrifice and deductible personal contributions, but excluding employer SG) are included in income tests for government benefits.
Using Carry-Forward Contributions
If you have unused concessional cap amounts from previous years, you may be able to contribute more than $30,000 in a single year.
Eligibility requirements:
Your total super balance must be less than $500,000 on 30 June of the previous financial year
You can only carry forward unused amounts from the past 5 years (starting from the 2018-19 financial year)
How to check your unused cap: Log in to myGov → ATO → Super to view your unused concessional cap amounts. The amount shown is the unused cap you have available in addition to the current year's cap.
Example: If you have $60,000 unused cap displayed, you could contribute up to $90,000 in 2025-26 without exceeding your limit ($60,000 unused from prior years plus $30,000 annual cap for 2025-26).
You don't need to fill in any forms or notify anyone to use carry-forward — just make your concessional contributions as usual, and the ATO will automatically apply your unused amounts (oldest first) when calculating whether you've exceeded the cap.
Who Benefits Most?
Salary sacrifice suits most working Australians earning over $45,000 per year (when the marginal tax rate exceeds the 15% super contributions tax) — especially:
Mid-career professionals (30s-50s) looking to accelerate long-term wealth building
High-income earners wanting to reduce tax efficiently
People with variable income who can sacrifice more in higher-earning years
Couples using income-splitting or spouse-contribution strategies to optimize household tax
Individuals expecting bonuses or higher income years who want to smooth their tax burden
Even small, consistent amounts can make a significant difference over time. A $100-per-fortnight salary sacrifice adds roughly $2,600 per year to super — after 30 years with compound investment returns, this could potentially add over $150,000 to your retirement savings (assuming a 7% annual return).
What If You Exceed the Cap?
If you accidentally contribute more than $30,000 (or your carry-forward limit) in concessional contributions:
The excess concessional contributions are included as taxable income and taxed at your marginal tax rate, with a 15% tax offset for the contributions tax already paid by your super fund.
You can elect to withdraw up to 85% of your excess concessional contributions from your super fund to help pay the resulting income tax liability. You have 60 days to make this election through myGov, though the option remains available for up to 120 days.
If you don't withdraw the excess, any excess concessional contributions you don't elect to have released will count towards your non-concessional contributions cap.
Key Takeaway
Salary sacrifice is one of the simplest, most tax-effective ways to grow wealth and reduce tax in 2025. By redirecting part of your pre-tax income into super, you benefit from a lower tax rate (15% vs your marginal rate), faster compounding, and a larger retirement balance — all while staying within the ATO's concessional caps.
The combination of:
Tax savings on every contribution
Compound growth on a larger balance
Tax-free investment earnings in retirement phase
...makes salary sacrifice a powerful wealth-building tool for most working Australians.
Important: This article provides general information only and should not be relied upon as financial advice. Salary sacrifice strategies should be tailored to your individual circumstances, including your:
Current income and marginal tax rate
Existing super balance and contributions
Cash flow requirements
Age and time until retirement
Insurance needs
Eligibility for government benefits
Before implementing or adjusting a salary sacrifice arrangement, you should:
Check your total super balance and existing concessional contributions through myGov
Calculate whether you have unused carry-forward amounts available
Consider the impact on your take-home pay and household cash flow
Review how it may affect other benefits or entitlements
If you're unsure about the right strategy for your situation, speak with a licensed financial adviser who can assess your individual circumstances and help you maximize the benefits while avoiding potential pitfalls.
Ready to optimize your super strategy? The team at Redwood Financial Planning can help you structure salary sacrifice arrangements, track contribution caps, and integrate super into your overall wealth plan.
For more information about salary sacrifice and contribution caps, visit the ATO website at ato.gov.au or contact your super fund directly.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial, tax, or investment advice. We recommend speaking with a qualified financial adviser before making any decisions regarding your superannuation. Every individual’s financial situation is unique, and personalised advice is essential to ensure the best outcome for your specific circumstances.
