Salary Sacrifice into Super: When It Pays Off (FY2025-26)

TL;DR

Salary sacrifice into super means redirecting some of your pre-tax salary into your super fund instead of receiving it as cash wages. The contribution is taxed at 15% inside the super fund (or 30% if Division 293 applies), instead of at your marginal income tax rate of up to 47% (45% top marginal + 2% Medicare Levy).

For FY2025-26 the concessional contributions cap is $30,000 per individual, including employer Superannuation Guarantee (SG) contributions. SG for FY2025-26 is 12.0% of ordinary time earnings. So a worker earning $80,000 has SG of $9,600, leaving roughly $20,400 of cap headroom for salary sacrifice — although the actual maximum depends on the worker's specific arrangement.

The savings depend overwhelmingly on the marginal rate:

• Sacrificing $1,000 at 47% top marginal → tax saved: $470 (cash) − $150 (15% inside fund) = $320 saved.
• Sacrificing $1,000 at 39% (37% bracket + 2% Medicare) → tax saved: $390 − $150 = $240 saved.
• Sacrificing $1,000 at 32% (30% bracket + 2% Medicare) → tax saved: $320 − $150 = $170 saved.
• Sacrificing $1,000 at 18% (16% bracket + 2% Medicare) → tax saved: $180 − $150 = $30 saved (often not worth the loss of liquidity).

The break-even is roughly at the 30% bracket (taxable income $45,001–$135,000) — that is the income range where salary sacrifice starts to materially beat just keeping the cash. Below that, the saving is small relative to the lock-in cost (the money is preserved until age 60+ in most cases).

This guide walks through the tax mechanics, the SG-on-sacrifice protection rule, the carry-forward cap rules, and three worked examples — graduate at $80,000, mid-career at $130,000, and pre-retiree at $200,000 — that show where salary sacrifice actually pays off.

How salary sacrifice works

Salary sacrifice is a contractual arrangement between you and your employer to redirect a portion of your gross salary into a super contribution. The arrangement must be:

• In writing, agreed before the salary is earned (cannot be retrospective).
• A genuine reduction in salary, not a re-labelling of existing super.
• Not breaching the SG entitlement — see the next section.

The contribution is paid by the employer to the super fund out of pre-tax salary. The employer reports it on the income statement as a Reportable Employer Super Contribution (RESC). The super fund treats it as a concessional contribution and applies the 15% contributions tax.

The mechanics from the worker's view:

Step	Without sacrifice	With $10,000 sacrifice
Gross salary	$100,000	$100,000
Less: salary sacrifice	$0	$10,000
Taxable wages	$100,000	$90,000
Income tax (FY2025-26)	$19,038	$15,938
Medicare levy 2%	$2,000	$1,800
Take-home cash	$78,962	$72,262
Plus: super contribution (after 15% tax)	$0	$8,500
Total economic position	$78,962	$80,762

In this example, sacrificing $10,000 produces a net economic uplift of $1,800 — that is the value of paying tax at 15% inside super rather than at the 32% effective marginal rate (30% + 2% Medicare) outside.

The SG-on-sacrifice protection rule

Before 1 January 2020, employers could legally pay SG on the reduced salary after sacrifice. So a worker who sacrificed $10,000 of a $100,000 salary received SG on only $90,000 — a structural disincentive to sacrifice.

The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019 fixed this. From 1 January 2020:

• Employers must pay SG on the pre-sacrifice salary (the "ordinary time earnings" before any sacrifice arrangement).
• Employers cannot count the sacrificed amount towards their SG obligation.

This is the most important structural protection for sacrifice arrangements. It removed the perverse incentive against sacrificing and made the maths cleanly favourable.

A worked check: a worker on $100,000 with $10,000 of sacrifice. SG at 12% × $100,000 = $12,000. Total concessional contributions = $12,000 SG + $10,000 sacrifice = $22,000. Well under the $30,000 cap.

The concessional cap

For FY2025-26 the concessional cap is $30,000 per individual. This includes:

• Employer SG contributions
• Salary sacrifice contributions
• Personal deductible contributions (claimed via Notice of Intent to Claim a Deduction)

The cap is per-individual, not per-employer. If you have multiple employers, the SG contributions stack against the same cap.

Carry-forward unused cap rules let you bring forward unused cap from the previous five financial years (back to FY2018-19) provided your total super balance is under $500,000 at the prior 30 June.

A worker who has been on parental leave for two years and has $40,000 of unused cap can sacrifice $30,000 (current cap) + $40,000 (carry-forward) = $70,000 in a single year. The carry-forward is a powerful lever for returning workers, single-income years, and lump-sum bonus-year planning.

Official source

• Income Tax Assessment Act 1997 (Cth) Division 290 — concessional contributions framework.
• the ATO — Super contributions caps — operational reference for the FY2025-26 cap.
• the ATO — Salary sacrificing super — guidance on arrangements and SG protection.
• Fair Work Ombudsman — Salary sacrifice arrangements — workplace law side.
• ASIC's MoneySmart — Salary sacrifice and super — independent overview.

Worked examples

Example 1 — Graduate engineer, $80,000 income

• Salary: $80,000
• Marginal rate (FY2025-26): 30% + 2% Medicare = 32% effective
• HECS-HELP debt: $28,000
• Existing salary sacrifice: $0

Scenario A: no sacrifice.

• Taxable income: $80,000
• Income tax: $14,788
• Medicare levy 2%: $1,600
• HECS at 4.0% × $80,000 (in the 4% repayment band): $3,200
• SG: 12% × $80,000 = $9,600 (paid by employer to super)
• Take-home cash: $80,000 − $14,788 − $1,600 − $3,200 = $60,412
• Super balance growth this year: $9,600 × 0.85 (after 15% contribution tax) = $8,160

Scenario B: sacrifice $5,000 into super.

• Taxable income: $80,000 − $5,000 = $75,000
• Income tax: $13,288
• Medicare levy 2%: $1,500
• HECS: HRI = $80,000 (RESC is added back) → still 4.0% × $80,000 = $3,200
• SG: 12% × $80,000 = $9,600 (the SG protection rule means SG is on pre-sacrifice salary)
• Take-home cash: $75,000 − $13,288 − $1,500 − $3,200 = $57,012
• Super balance growth: $9,600 × 0.85 + $5,000 × 0.85 = $8,160 + $4,250 = $12,410

Comparison:

• Cash difference: $60,412 − $57,012 = $3,400 less cash
• Super difference: $12,410 − $8,160 = $4,250 more super
• Net economic uplift: $850 per year (= $5,000 × 17 percentage points = $850, the difference between the 32% effective marginal and 15% contribution tax)

The graduate gains $850 a year by sacrificing $5,000. Over 30 years of compounding inside super at, say, 7% net return, that $4,250 contribution becomes about $32,000 — a meaningful retirement uplift relative to a $850 annual nominal saving today.

But the trade-off is liquidity: $5,000 is locked away until preservation age (60). For a graduate building emergency funds or saving for a first home deposit, the First Home Super Saver scheme is a partial workaround — it lets you withdraw voluntary super contributions for a first home deposit. Outside FHSS, the sacrifice is a long-term, illiquid commitment.

Example 2 — Mid-career professional, $130,000 income

• Salary: $130,000
• Marginal rate (FY2025-26): 30% + 2% Medicare = 32% effective (still in the 30% bracket which ends at $135,000)
• HECS-HELP: $0 (paid off)
• Goal: maximise long-term super balance

Scenario A: no sacrifice.

• Taxable income: $130,000
• Income tax: $29,788
• Medicare levy 2%: $2,600
• SG: 12% × $130,000 = $15,600
• Take-home: $130,000 − $29,788 − $2,600 = $97,612
• Super growth: $15,600 × 0.85 = $13,260

Scenario B: sacrifice $14,400 into super (filling the cap to $30,000 with SG of $15,600).

• Taxable income: $115,600
• Income tax: $25,180
• Medicare levy 2%: $2,312
• SG: 12% × $130,000 = $15,600 (protected)
• Take-home: $115,600 − $25,180 − $2,312 = $88,108
• Super growth: ($15,600 + $14,400) × 0.85 = $30,000 × 0.85 = $25,500

Comparison:

• Cash difference: $97,612 − $88,108 = $9,504 less cash
• Super difference: $25,500 − $13,260 = $12,240 more super
• Net economic uplift: $2,736 per year (= $14,400 × 19 percentage points)

The mid-career professional gains $2,736 per year by filling the concessional cap. Over 25 years to age 65, the cumulative effect of 25 years of $12,240 of additional super contributions, compounding at 7% net, is around $770,000 — a major retirement uplift.

The decision question is the same as the graduate's: cash now vs locked super. At $130,000 the worker typically has emergency funds in place and a mortgage; the trade-off is much cleaner.

Example 3 — Pre-retiree, $200,000 income

• Salary: $200,000
• Marginal rate (FY2025-26): 45% + 2% Medicare = 47% top effective
• Age: 58 (eligible for Transition to Retirement pension)
• Total super balance: $400,000

Scenario A: no sacrifice.

• Taxable income: $200,000
• Income tax: $51,638
• Medicare levy 2%: $4,000
• Medicare Levy Surcharge: $0 (assume hospital cover)
• SG: 12% × $200,000 = $24,000 (the maximum contribution base is around $251,500 per quarter, so $200,000 is below the SG cap)
• Take-home: $200,000 − $51,638 − $4,000 = $144,362
• Super growth: $24,000 × 0.85 = $20,400

Scenario B: sacrifice $6,000 into super (filling cap at $30,000 with SG of $24,000).

• Taxable income: $194,000
• Income tax: $48,818
• Medicare levy 2%: $3,880
• SG: 12% × $200,000 = $24,000 (protected)
• Take-home: $194,000 − $48,818 − $3,880 = $141,302
• Super growth: $30,000 × 0.85 = $25,500

Comparison:

• Cash difference: $144,362 − $141,302 = $3,060 less cash
• Super difference: $25,500 − $20,400 = $5,100 more super
• Net economic uplift: $2,040 per year

But the pre-retiree at 58 has additional levers:

• Transition to Retirement (TTR) pension. Once over preservation age (60 for those born after 1964; 58 for some pre-1964 cohorts), the worker can start a TTR pension that draws from super tax-free (after age 60) while continuing to sacrifice fresh contributions. The TTR effectively recycles after-tax cash through super at the 15% earnings rate.
• Carry-forward unused cap. If the pre-retiree has a total super balance under $500,000, they can carry forward unused cap from prior years. At $400,000 they qualify. They could potentially sacrifice $30,000 + $80,000 of carry-forward = $110,000 in the current year (if the cash is available).
• Division 293 check. At $200,000 taxable + $6,000 RESC + $24,000 SG = $230,000 Division 293 income — under the $250,000 threshold. No Division 293 hit. But carry-forward sacrifice of $80,000 would push to $310,000 — Division 293 applies on the lesser of (over-threshold = $60,000) and (low-tax contributions = $110,000) = $60,000, charge of $9,000.

Should the pre-retiree carry-forward sacrifice $80,000?

The arithmetic:

• Sacrifice $80,000 carry-forward.
• Tax inside super: 15% × $80,000 = $12,000. Plus Division 293: $9,000. Total: $21,000.
• Tax saved outside super: 47% × $80,000 = $37,600.
• Net saving: $16,600 in the year.

Plus the amount inside super now compounds at the 15% earnings rate (10% in TTR pension phase, 0% in retirement phase) for the next 20+ years.

For a pre-retiree with cash to lose to the contribution and carry-forward eligibility, this is one of the most valuable single-year moves in the personal tax toolkit. The $16,600 cash saving plus 20+ years of tax-advantaged compounding is genuinely transformative.

Common pitfalls

• Forgetting the SG-on-sacrifice protection rule. Pre-2020 sacrifice arrangements often paid SG on the reduced salary. From 1 January 2020 the rule changed; SG is on the pre-sacrifice salary. If your existing arrangement still pays SG on reduced salary, your employer is non-compliant — raise it with payroll.
• Sacrificing past the cap. The concessional cap is $30,000 for FY2025-26. Excess concessional contributions are taxed at the top marginal rate plus interest. The arithmetic neutralises the benefit. Always check available cap (including carry-forward) before increasing sacrifice.
• Not accounting for Division 293. At $250,000 of Division 293 income, an extra 15% applies. The case for sacrifice still holds, but the saving shrinks.
• Forgetting the SG cap. SG is capped at the maximum contribution base ($251,500 per quarter for FY2025-26 ≈ $1,006,000 annual). For workers above this, SG plateaus and the sacrifice headroom is greater.
• Sacrificing too aggressively at low marginal rates. At the 18% effective rate (16% bracket + 2% Medicare), the saving is only $30 per $1,000. The lock-in cost outweighs the saving for most workers in this band. Below ~$45,000 of taxable income, sacrifice is rarely worth it on the maths alone.
• Confusing salary sacrifice with personal deductible contributions. They are economically equivalent for tax outcomes but procedurally different. Salary sacrifice is set up with the employer and reduces taxable wages at source. Personal deductible contributions are made from after-tax money and claimed as a deduction at lodgement (with a Notice of Intent to Claim form). For workers without a regular employer or with multiple employers, the personal deductible route is often cleaner.
• Ignoring the Centrelink income test impact. Reportable employer super contributions are added back for many Centrelink income tests. For workers near the JobSeeker, Family Tax Benefit or Commonwealth Rent Assistance income thresholds, sacrificing into super does not reduce the assessable income for those benefits.
• Forgetting the contribution-tax-free threshold. Members earning under roughly $37,000 receive the Low Income Super Tax Offset (LISTO) of up to $500, effectively refunding the 15% contributions tax on SG. Salary sacrifice contributions also benefit from LISTO if they push the total under the threshold. Worth checking for low-income workers.

How marginal rate determines the decision

A simple rule of thumb:

• 47% marginal (top bracket): sacrifice always pays. Net saving ≈ 32 cents per dollar.
• 39% marginal (37% + 2% Medicare): sacrifice almost always pays. Net saving ≈ 24 cents per dollar.
• 32% marginal (30% + 2% Medicare): sacrifice usually pays, especially with a long horizon. Net saving ≈ 17 cents per dollar.
• 18% marginal (16% + 2% Medicare): sacrifice rarely pays on tax alone. Net saving ≈ 3 cents per dollar.
• 0% marginal (under $18,200 threshold): do not sacrifice — you would actually pay 15% to put your money in. Use non-concessional contributions instead if you want to grow super.

The non-tax considerations — long-term compounding, partner-balance smoothing, retirement income planning — can override the simple rule, but the tax arithmetic above is the starting point.

Spouse contribution and super splitting

Two adjacent levers worth flagging:

• Spouse super contribution offset. If your spouse earns less than $40,000 you can claim an 18% offset (capped at $540) on contributions of up to $3,000 made into their super fund. The offset phases out between $37,000 and $40,000 of spouse income. This is a non-concessional contribution, not a salary sacrifice — the contribution is from the partner's after-tax money, but the offset reduces the partner's tax bill.
• Spouse contribution splitting. Up to 85% of your concessional contributions can be split into your spouse's super fund each year (after lodgement of the year's return). This is useful for couples with materially different super balances, especially if one partner is approaching the $1.9M transfer balance cap. The split does not change the tax inside the fund — it is purely a balance-rebalancing tool.

Both levers are fully covered in the Spouse Super Contribution Calculator.

Salary sacrifice for under-18s and certain casuals

The SG entitlement only kicks in for employees under 18 if they work more than 30 hours per week. For young casual workers below the threshold, there is no employer SG, and salary sacrifice has no SG protection rule to worry about.

For very young high earners (e.g. a 17-year-old apprentice on $80,000 working 35+ hours/week), the SG rule applies normally. The marginal-rate maths is identical to an adult worker at the same income. The lock-in cost is more severe — the money is locked away until preservation age, which for a 17-year-old is 43+ years away. Most advisers would recommend keeping cash flexible at this age and starting sacrifice from around 25–30 once career stability is established.

Salary sacrifice and the small business 25% cap

For small business owners under the personal services income (PSI) rules, the deductibility of super contributions can be limited. PSI rules apply if more than 50% of your business income comes from the personal labour of one person. In that case super contributions may be capped to the level that would apply to an employee in similar employment.

The PSI rules and the salary sacrifice rules interact carefully. Most consulting and contracting structures operating under PSI use personal deductible contributions rather than salary sacrifice (since there is no employer in the conventional sense). The economic outcome is the same; the procedural mechanics differ.

What to watch for in the next Budget cycle

The Federal Budget night (the second Tuesday in May) is where super-related thresholds are typically refreshed. Three items worth flagging:

• Concessional cap. The $30,000 cap for FY2025-26 is the result of the AWOTE indexation kicking in. Future indexation continues at $2,500 increments. Expect $32,500 from FY2027-28 if AWOTE growth hits the trigger.
• Division 293 threshold. Static at $250,000 since FY2017-18; bracket creep continues to widen the population. Reform proposals exist but are not legislated.
• SG rate. SG is at 12.0% for FY2025-26 — the legislated end-state of the SG step-up. No further rises are scheduled.

We update this article each May after the Federal Budget. The "Updated" date at the top of the page is the version you are looking at.

Related calculators

• Salary Sacrifice Super Calculator — model your sacrifice scenario for FY2025-26.
• Super Carry-Forward Cap Calculator — work out unused cap from prior years.
• Division 293 Calculator — for high-income earners over $250,000.
• Super Co-Contribution Calculator — for low and middle-income earners with non-concessional contributions.
• Transition to Retirement Pension Calculator — pre-retiree pairing with sacrifice.

This article is general information based on the legislated FY2025-26 super rules. It is not personal tax, super, or financial advice; speak to a registered tax agent or licensed financial adviser for your specific situation. The figures will be revisited each May after the Federal Budget.