14 May 2026

By Philippa Billings, Chief Advice Officer

Salary sacrifice into super means redirecting a portion of your before-tax salary directly into your super account, rather than receiving it as take-home pay. Because those contributions go in before income tax is applied, they're taxed at a concessional rate which is generally 15% inside super (high income earners pay another 15%, so 30% in total) — which is lower than the personal income tax rate of most working Australians. For many people, this makes salary sacrifice one of the more efficient ways to build super while also reducing their tax bill in the current financial year.

How does salary sacrifice into super actually work?

When an employee sets up a salary sacrifice arrangement with their employer, the agreed amount is diverted to super before the withholding tax is deducted. This reduces an employee's assessable income for tax purposes, which means they pay less income tax on their overall earnings.

Here's a simplified example: if someone earns $90,000 per year and salary sacrifices $10,000 into super, the taxable income drops to $80,000. This represents an income tax saving or $3,200. Contribution tax of 15% is deducted. Once inside the growth side of super (called accumulation), earnings on super are taxed at 15% rather than their marginal rate of 30% (excludes Medicare levy). That's a net tax saving of roughly $1,700 for the year.

It's worth noting that salary sacrifice contributions are classified as concessional contributions, which means they count towards the annual concessional cap of $30,000 in 2025-2026 - increasing to $32,500 in 2026-27. That cap includes compulsory employer contributions (the Superannuation Guarantee), so the available space for salary sacrifice depends on how much the employer is already putting in.

Who tends to benefit most from salary sacrifice?

People with personal income tax brackets of 30% or higher. Those in higher income tax brackets tend to benefit most, because the gap between their marginal tax rate and the contributions tax rate inside super is larger. However, people across a range of income levels can find value in it, depending on their individual circumstances and goals.

Those within 10–20 years of retirement often find salary sacrifice particularly appealing, as there's still enough time for contributions to compound meaningfully before they're drawn down. But people earlier in their career may also consider it as part of a long-term wealth-building approach.

One consideration many people overlook: salary sacrifice reduces take-home pay, which means it's important to understand the impact on monthly cash flow before committing to an amount.

What are the limits on salary sacrifice contributions?

The concessional contributions cap of $30,000 for 2025-26 - increasing to $32,500 in 2026-27. This cap applies to all concessional contributions combined — including employer compulsory Superannuation Guarantee contributions, any additional employer contributions, and salary sacrifice amounts. Going over the cap can result in extra tax.

For people who have had years of lower contributions — perhaps due to part-time work, career breaks, or periods of self-employment — carry-forward rules may allow them to contribute more in a given year. Carry-forward concessional contributions might be available to those with a total super balance under $500,000, allowing unused cap amounts from the previous five financial years to be accessed. Contribution history and carry-forward availability can be checked in ATO online services in myGov.

What's the difference between salary sacrifice and personal deductible contributions?

These are two different paths to a similar destination. Salary sacrifice is arranged with an employer and comes out before tax is deducted. Personal deductible contributions are made from after-tax income and then claimed as a tax deduction in an individual's tax return.

Both are concessional contributions and count towards the same $30,000 annual cap for 2025-26 - increasing to $32,500 in 2026-27.

Self-employed people and those whose employers don't offer salary sacrifice often use personal deductible contributions as an alternative. The net tax outcome can be similar, but the cashflow timing is different — personal contributions require funds upfront, with the tax benefit arriving later via a refund or reduced tax assessment.

Otivo's salary sacrifice module helps people work out whether directing some of their salary into super makes sense given their current income, household expenses, employer contributions, and retirement timeline. It provides regulated digital advice on whether to make the change — and by how much.

Does salary sacrifice affect employer super contributions?

Generally, no. Salary sacrifice contributions cannot reduce an employer's compulsory Superannuation Guarantee (SG) obligation.

What happens if I want to change or stop my salary sacrifice arrangement?

Notify payroll, or your employer directly in writing. You can do it anytime - changes generally take effect from the next pay period.

Frequently asked questions

Is salary sacrifice into super worth it?

For many people on middle to higher incomes, salary sacrifice offers a meaningful tax saving while building retirement savings faster. Whether it's the right choice depends on individual income, cash flow needs, existing concessional contributions, and proximity to retirement. A super calculator or licensed advice tool can help model the projected impact.

Can I salary sacrifice if I'm self-employed?

Sole traders and many other self-employed people can't salary sacrifice in the traditional sense because there's no employer-employee relationship. However, they can make personal concessional contributions and claim them as a tax deduction — which achieves a similar tax outcome.

Does salary sacrifice affect my take-home pay?

Yes. Because salary sacrifice reduces taxable income, take-home pay will generally be lower than before the arrangement — though the reduction is partially offset by paying less income tax. A salary sacrifice calculator or superannuation calculator can help estimate the net effect on take-home pay alongside the projected super boost.

Building a stronger retirement through smart contributions

Salary sacrifice is one of several contribution strategies that Australians commonly explore as part of building a secure retirement. When customers follow Otivo's optimised contributions advice in full, they could be better off on average by $180,356 in today's dollars by a retirement age of 65 — which reflects just how significant the compounding effect of extra contributions can be over a working lifetime.

Whether salary sacrifice is the right move for a particular person depends on their full financial picture. Tools like Otivo's superannuation projection module — or a conversation with a licensed financial adviser — can help clarify whether the numbers make sense given individual goals and constraints.

Disclaimer

The information in this communication is current as at May 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.