Salary Sacrifice
An arrangement where you direct part of your pre-tax salary into super (or other benefits), reducing your taxable income.
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.
How it works
Salary sacrifice works because the arrangement is made before you're paid — you agree with your employer to redirect part of your future pre-tax salary, most commonly into super, so that portion is never treated as your salary for tax purposes in the first place. Instead of being taxed at your marginal rate, it's taxed at 15% inside the super fund. Because it has to be set up before the income is earned, an arrangement made over pay you've already received doesn't count as effective salary sacrifice.
On a payslip, this shows up as a lower gross salary figure and reduced PAYG withholding, alongside a separate employer contribution line to your super fund covering both the sacrificed amount and your normal Superannuation Guarantee. Both the salary-sacrificed amount and your employer's SG count together toward your concessional contributions cap, which is $32,500 for 2026-27.
The obvious downside is reduced take-home pay, since the redirected money is locked inside super until you reach preservation age and meet a condition of release, so it isn't available for near-term spending. High earners also need to watch Division 293, which adds extra tax on concessional contributions once income plus contributions exceed $250,000. If you have unused concessional cap from previous years and a total super balance under $500,000, you may be able to carry forward and sacrifice more than the standard annual cap in a single year.
Example: salary sacrificing into super on a 30% marginal rate
Say you're on a 30% marginal tax rate and decide to salary sacrifice $8,000 a year into super. Outside super, that $8,000 would have been taxed at 30% ($2,400), leaving $5,600 in your pocket. Redirected through salary sacrifice, it's instead taxed at 15% inside the fund ($1,200), leaving $6,800 — a net saving of $1,200 compared with taking the money as ordinary salary.
If your employer also pays $12,000 in Superannuation Guarantee for the year, your total concessional contributions come to $20,000 ($12,000 SG plus your $8,000 salary sacrifice) — comfortably under the $32,500 concessional cap for 2026-27, leaving room to sacrifice more if you wanted to.
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Concessional Contributions
Before-tax super contributions taxed at 15% inside the fund, including employer SG, salary sacrifice, and personal deductible contributions.
Superannuation Guarantee (SG)
The compulsory minimum percentage of an employee's qualifying earnings (formerly ordinary time earnings) employers must contribute to their super fund.
Division 293 Tax
An additional 15% tax on concessional super contributions for individuals with income and super contributions above $250,000.
Carry-Forward Unused Cap
The ability to use unused concessional contribution cap amounts from the previous 5 years, if your total super balance is under $500,000.
Taxable Income
Your assessable income minus allowable deductions — the figure used to calculate your income tax.