Salary Sacrifice

Salary sacrifice (also called salary packaging) is an arrangement where you agree with your employer to forgo part of your pre-tax salary in exchange for benefits — most commonly additional superannuation contributions. By redirecting income into super before income tax is calculated, you reduce your taxable income and pay only 15% contributions tax inside super, instead of your marginal tax rate (which could be up to 45% + Medicare levy).

For 2026–27, salary sacrifice contributions count towards your concessional contributions cap of $32,500 per year (which also includes your employer's SG contributions). For example, if your employer contributes $12,000 in SG, you can salary sacrifice up to $20,500 before hitting the $32,500 cap. If you have unused cap amounts from prior years (since 2018–19) and your total super balance is under $500,000, you may be able to carry forward and contribute more.

The tax savings are significant: on a marginal rate of 30%, salary sacrificing $10,000 saves you $1,500 in tax ($3,000 income tax saved minus $1,500 super contributions tax paid). For someone on the 37% rate, the saving is $2,200 per $10,000. However, be aware that salary sacrifice reduces your take-home pay, and the funds are locked in super until you reach preservation age and meet a condition of release.