Who This Guide Is For
This guide is for Australian employees who want to reduce their taxable income while building long-term retirement wealth through salary sacrifice super contributions. Whether you are on a $70,000 salary or earning $200,000+, understanding how salary sacrifice (also called concessional contributions or pre-tax super contributions) interacts with the super guarantee, contribution caps, and Division 293 tax can save you thousands of dollars each year.
If you are self-employed, the mechanics differ — you make personal deductible contributions rather than employer-arranged salary sacrifice. This guide focuses on employees, but the concessional contribution cap and tax treatment are the same for both.
What Is Salary Sacrifice Super?
Salary sacrifice super is an arrangement where you and your employer agree to redirect part of your pre-tax salary directly into your superannuation fund instead of taking it as take-home pay.
According to the ATO, salary sacrifice contributions are classified as concessional contributions and are taxed at just 15% within your super fund — significantly lower than most people's marginal income tax rate (ATO guidelines).
How It Works — A Simple Example
Sarah earns $95,000 per year. Without salary sacrifice, her employer pays $11,400 (12% super guarantee) into her super. Sarah takes home about $72,500 after tax.
Sarah arranges to salary sacrifice $10,000 per year. This means:
- Her taxable income drops to $85,000
- The $10,000 goes into super and is taxed at 15% ($1,500)
- If she had taken it as salary, she would have paid 30% marginal tax + 2% Medicare Levy ($3,200)
- Tax saved: $3,200 - $1,500 = $1,700 per year
Over 20 years, that is $34,000 in tax savings — before investment earnings.
Concessional Contribution Caps (FY2025–26)
1. The Annual Cap — $30,000
The concessional contributions cap for FY2025–26 is $30,000 per person per year. This cap includes:
| Contribution Type | Included in Cap? |
|---|---|
| Employer Super Guarantee (12%) | Yes |
| Salary sacrifice amounts | Yes |
| Personal deductible contributions | Yes |
| Contributions made by a third party on your behalf | Yes |
Important: The $30,000 cap applies to the total of ALL concessional contributions combined — not per category. If your employer already contributes $12,000 in SG, you can only salary sacrifice up to $18,000 more without exceeding the cap.
2. Carry-Forward Unused Cap
If your total super balance was below $500,000 on 30 June of the previous financial year, you can access unused concessional cap amounts from up to five previous years.
Example: In FY2019–20, the cap was $25,000. If you only used $15,000, you have $10,000 of unused cap you can carry forward and use in FY2025–26, giving you up to $40,000 in total concessional cap for this year.
This is particularly useful for those who have had a windfall year (bonus, redundancy payout, capital gain) and want to reduce taxable income aggressively.
3. The Division 293 Threshold — $250,000
If your combined income and concessional contributions exceed $250,000 in a financial year, you pay an additional 15% Division 293 tax on the excess — taking your effective tax on those contributions to 30% instead of 15%.
Still, 30% beats the 47% top marginal rate. Salary sacrifice remains valuable even above $250,000.
Tax Savings by Income Level
| Annual Income | Marginal Rate (incl. Medicare) | Salary Sacrifice $10,000 | Tax Saved vs Taking as Salary |
|---|---|---|---|
| $45,000 | 18% | $10,000 → super | $300 |
| $75,000 | 30% + 2% = 32% | $10,000 → super | $1,700 |
| $120,000 | 30% + 2% = 32% | $10,000 → super | $1,700 |
| $200,000 | 47% | $10,000 → super | $3,200 (before Div 293) |
*Note: The table assumes the employer SG is already at cap level. Actual savings depend on how much cap room you have left.*
How to Set Up Salary Sacrifice
1. Check Your Super Fund
Confirm your fund accepts employer contributions and that you know your member number.
2. Calculate Your Cap Room
Formula: `$30,000 - (employer annual SG contributions) = remaining cap room`
For example, if you earn $100,000 and your employer contributes $12,000 in SG, you have $18,000 remaining.
3. Speak to Your Payroll/HR
Most employers use a standard salary sacrifice form. Specify the dollar amount per pay period (e.g., $385 per fortnight = $10,000 per year).
4. Confirm on Your Payslip
Your payslip should show the reduced taxable salary and the salary sacrifice amount shown separately. Verify the money actually reaches your super fund by checking your super account balance.
Common Mistakes People Make
| Mistake | Why It's Wrong | What to Do Instead |
|---|---|---|
| Exceeding the $30,000 cap | Excess contributions are taxed at your marginal rate plus an excess concessional contributions charge | Calculate employer SG + your planned sacrifice = must be ≤ $30,000 |
| Forgetting the cap includes SG | Employer contributions count toward the $30,000. Many people forget this | Always subtract 12% of your salary from $30,000 first |
| Salary sacrificing below minimum wage | Your employer cannot reduce your pay below the National Minimum Wage after salary sacrifice | Check with payroll that your post-sacrifice salary meets minimum wage rules |
| Not checking carry-forward eligibility | You may be eligible for unused cap from 2019–20 onward if your super balance is under $500,000 | Log into myGov → ATO → Super to check your unused concessional cap |
| Assuming all employers offer it | Some employers do not offer salary sacrifice beyond the mandatory SG arrangements | Ask HR before planning your tax strategy |
Records to Keep
- Your salary sacrifice agreement with your employer (signed form or email confirmation)
- Payslips showing salary sacrifice amounts each pay period
- Super fund annual statements confirming contributions received
- myGov ATO records showing total concessional contributions for the year
- Any correspondence about carry-forward cap usage
Quick Checklist
- Calculate your employer's annual SG contributions (12% × salary)
- Calculate your remaining cap room: $30,000 − employer SG
- Check if you are eligible for carry-forward unused cap (balance < $500,000 at 30 June prior)
- Check if Division 293 tax applies to you (income + contributions > $250,000)
- Decide on a salary sacrifice amount per pay period
- Submit the salary sacrifice form to your payroll/HR department
- Verify the first contribution reaches your super fund
- Review annually before EOFY to maximise unused cap
Complex situation? a registered tax agent (see the directory) Still unsure whether salary sacrifice is right for you? See our full decision guide.
*Disclaimer: This is general information only, not financial or tax advice. Superannuation and tax rules are complex and depend on your individual circumstances. Consult a registered tax agent or licensed financial adviser for advice specific to your situation.*