Maximising Salary Sacrifice for Tax Savings

Quick Look

Focus: How salary sacrifice into super can reduce your tax and increase long-term savings

Key Takeaways :

Salary sacrifice lowers your taxable income and may reduce your marginal tax rate
Contributions are taxed at 15% inside super—often less than your personal rate
Going over the concessional cap or ignoring your cash flow needs can backfire
Reading Time: ≈ 5minutes

Introduction

Salary sacrifice into superannuation is one of the most tax-effective strategies available to working Australians. Done right, it can help you pay less tax now and grow your retirement savings faster.

But like any strategy, it’s not one-size-fits-all. If you earn too little—or too much—or forget to check your caps, it can backfire. Here’s how it works, who it suits, and where the pitfalls lie.

Context & Problem

Australians pay income tax based on marginal tax rates. The more you earn, the more tax you pay on each additional dollar. But salary sacrifice allows you to redirect some of your pre-tax salary into super, where it’s taxed at just 15%—potentially much lower than your usual rate.

The catch?

It affects your take-home pay
You can’t touch the money until you meet a condition of release (usually retirement)
There’s a cap—and going over it can trigger extra tax

So, the question becomes: how much can you contribute without hurting your cash flow or
breaching the rules?

Strategy & How To

Step 1: Know your tax rate

If your income is:

$0–$18,200 (no Medicare)
$18,201–$45,000 16%on the additional margin (plus 2% Medicare above * $27,222.
$45,001–$135,000 32% on the additional margin (plus 2% Medicare)
$135,001–$190,000 37% on the additional margin (plus 2% Medicare)
Over $190,000 45% on the additional margin (plus 2% Medicare)

Pensioner nil rate Medicare threshold is $43,020 or $45,907 for a family & $59,886 for
family pensioners
Redirecting some of that income into super, where it’s taxed at 15%, can mean big savings.

Example: Lisa earns $100,000.

Without salary sacrifice: she takes home ≈ $76,000
With a $10,000 salary sacrifice
Her new taxable income = $90,000
She pays ≈ $20,500 tax (was ≈ $24,000)
Super fund pays 15% on $10,000 = $1,500
Net tax = $20,500 + $1,500 =$22,000

Tax saved: ≈ $2,000 and $8,500 goes into super

Step 2: Stay under the cap

The concessional contributions cap is $30,000 per financial year (ATO, updated 1 July 2024). This includes:

Employer contributions (typically 11.5% of your salary)
Salary sacrifice amounts
Any personal deductible contributions

Tip:
If your employer is already contributing $11,500 (11.5% of $100,000), that leaves $18,500
room for extra salary sacrifice.

Step 3: Adjust carefully

Don’t sacrifice so much that you struggle to meet everyday expenses
Update your arrangement through payroll—not via your super fund
Regularly review your contributions to avoid breaching the cap, especially if your salary or employer contributions change

Case Study

Before: Raj earns $85,000. He’s paying ≈ $18,700 in tax, and his employer contributes $9,775 into super. He’s not making any extra contributions. After: Raj starts sacrificing $8,000 per year. His taxable income drops to $77,000 Income tax falls to ≈ $16,000 Super fund receives$8,000 pre-tax (pays $1,200 tax) Net gain: $1,500 tax saved, $6,800 more in super, and only a≈ $5,300 drop in take-home pay Outcome: By giving up $100 a week, Raj grows his super faster and pays less tax overall. If Raj is 37, at an net earning rate of 6% pa, that $100 per week grows to $269,000 (in today’s dollars assuming 2.5% inflation) by the time he is 67. As he has given up $156,000 take home pay over that period, he is $113,000 better off.

Common Questions & Misconceptions

Won’t I lose access to that money?

Yes—until you reach your preservation age(between 55–60) and retire or meet another release condition. It’s a long-term move.

What if I go over the cap?

You may be taxed at your marginal rate plus an excess contributions charge. The ATO usually allows you to withdraw the excess, but it’s best to avoid it.

Can I stop or change it later?

Yes. Salary sacrifice arrangements aren’t locked in—you can change or cancel through your employer or make additional contributions yourself and claim the deduction each year.

Is it worth it on a lower income?

Sometimes. If your marginal rate is under 16%, the benefit shrinks. You might consider a co-contribution instead—the government may match your after-tax contributions up to $500 depending on your income.

Conclusion

Salary sacrifice is a proven way to cut tax and boost your super—especially if you’re in the 34% or 39% tax brackets. The key is to balance the tax savings with your lifestyle needs and always stay under the contribution cap. A little planning now can mean a lot more freedom in retirement.

Thinking about contributing to super from your pre-tax salary?

moneyGPS helps you understand how salary sacrifice could improve your long-term position, including:

How much you can afford to contribute
The potential tax savings and retirement benefits
Financial modelling based on your actual figures

Available online for $198. Start free and access the advice when you’re ready.

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Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.

How We Keep It Trustworthy

Every article includes a Review & Fact Check section below—so you know exactly where our facts come from, what’s uncertain, and whether there’s any bias.

Common Questions & Misconceptions

1. Fact References

Marginal tax rates: ATO–Individual income tax rates 2024–25(ato.gov.au)
Concessional cap of $30,000: ATO–Contribution caps (updated 1 July 2024)
Salary sacrifice rules: Money Smart–Salary packaging (moneysmart.gov.au)

2. Unverified or Inconclusive Items

Net take-home pay impacts are estimated and will vary by individual deductions and offsets

3. Time Sensitivity

Concessional contribution cap is current as of 1 July 2024; subject to annual indexation
Employer Super Guarantee rate is 11.5% from 1 July 2024

4. Bias Assessment:

Neutral, educational content. Mentions of Money GPS and Planning IQ included as optional services without persuasive language.