By Paul Feeney, Founder and Chief Executive Officer, Otivo

Salary sacrifice into super redirects part of your before-tax pay into super instead of wages. It can lower taxable income and add to retirement savings. For 2025–26, it counts towards the $30,000 concessional contributions cap set by the ATO, alongside employer super guarantee and personal deductible contributions.

Many Australians look for ways to grow their super faster. Salary sacrifice is one of the most common tools people reach for. This guide explains how it works, the tax angle, and the rules to know. It also walks through what to think about before setting it up. The figures below reflect the 2025–26 financial year, current as at May 2026.

How does salary sacrifice into super work in Australia?

Salary sacrifice is a formal agreement between an employee and employer. The employer pays part of the employee's wage straight into their super fund. The arrangement must be set up before the wage is earned, never after the fact.

The sacrificed amount is a concessional contribution. The super fund pays 15% contributions tax on it when it lands. That rate is often lower than the income tax the employee would pay on the same dollar.

Three types of contributions count as concessional. Together, they make up what we call the three concessional contribution types:

• Employer super guarantee (SG)
• Salary sacrifice
• Personal contributions you claim as a tax deduction

All three share a single combined annual cap. They are not separate caps. We cover the numbers in the next section.

The superannuation guarantee rate is 12% from 1 July 2025. That was the final step in the legislated phased increase. Employers must pay it on top of wages.

What are the tax benefits of salary sacrifice into super?

The tax angle is the main reason people use salary sacrifice. Income tax in Australia is progressive. Higher earnings sit in higher tax brackets. Super contributions are taxed at a flat 15% inside the fund.

The bigger the gap between someone's marginal rate and the 15% contributions tax, the bigger the tax-effective benefit. For someone on a 32.5% marginal rate, the gap is sizeable. For someone in the lowest bracket, the gap is small or non-existent.

What is Division 293 tax and who does it affect?

Higher earners face an extra rule called Division 293 tax. If combined income and concessional contributions exceed $250,000 in a financial year, an extra 15% tax applies to the concessional contributions above that threshold. The total tax on those contributions becomes 30% rather than 15%.

Income for the Division 293 test includes taxable income, reportable fringe benefits, net investment losses, and the concessional contributions themselves. The $250,000 threshold has been unchanged since the rule started in 2012–13.

Even at 30%, concessional contributions stay tax-effective for people on the top marginal rate. The advantage is just smaller. Lower earners get less benefit. Some on very low incomes may get no real tax benefit at all.

How much can you salary sacrifice into super each year?

The concessional contributions cap for 2025–26 is $30,000. This is a combined cap. It covers employer SG, salary sacrifice, and any personal deductible contributions in the same financial year.

Recent caps have moved as follows.

The cap is indexed to average weekly ordinary time earnings. It moves in $2,500 steps. That's why it doesn't step up every year.

A worked example helps here. Imagine someone earns $100,000 a year. Their employer pays 12% SG, or $12,000. They have $18,000 of concessional cap room left. They could salary sacrifice up to that amount without hitting the cap.

Going over the cap is not a disaster. The excess is added to assessable income. It's then taxed at the marginal rate, with a 15% offset for tax already paid by the fund. An excess concessional contributions charge also applies. The individual can elect to release up to 85% of the excess from super.

How do you set up salary sacrifice with your employer?

Setting up salary sacrifice is a short process for most people. The four steps are usually:

• Talk to your employer or payroll team about the option
• Agree the amount and frequency in writing, before any wage is earned
• Choose between a fixed dollar amount or a percentage of pay
• Check the first few pay slips to confirm the contributions are flowing

The agreement must be made before the income is earned. A back-dated arrangement won't qualify as salary sacrifice. Some employers have a set form. Others accept a simple email exchange.

It's worth checking how SG is calculated under the agreement. By law, employer SG must be paid on the full pre-sacrifice wage. Some older arrangements failed to do this, leaving employees short of SG. Reform closed that loophole from 1 January 2020.

From 1 July 2026, payday super reforms will require employers to pay SG at the same time as wages. This will give employees clearer visibility of contributions landing in the fund. You can read more in our payday super guide.

What are the risks and things to watch with salary sacrifice?

Salary sacrifice is a well-established strategy. Even so, several things are worth thinking about before locking it in.

Cash flow is the first one. Salary sacrifice reduces take-home pay. Some people find they need that money for the mortgage, school fees, or daily living. Sacrificing too much can create a household squeeze.

Access is restricted. Money in super is generally locked away until preservation age. For most people working today, that's age 60. Once it's in, it's hard to pull out.

The cap is a hard ceiling. Going over the combined $30,000 cap has the tax consequences described above.

Division 293 can shrink the benefit for higher earners. The contributions stay concessional, but the gap to the marginal rate narrows.

Insurance inside super can be affected if the contribution mix changes. Some funds reduce or cancel cover if an account becomes inactive. Salary sacrifice doesn't usually trigger this, but it's worth confirming with the fund.

Older workers face age-based rules. People aged 67 to 74 can usually accept salary sacrifice through an employer. But personal deductible contributions in that age range need the work test. That means 40 hours of paid work in 30 consecutive days, or the work test exemption. People aged 75 and over generally cannot make voluntary contributions, with limited exceptions like downsizer contributions or mandated employer SG.

Who might benefit from salary sacrifice into super?

Salary sacrifice suits some situations more than others. Common situations where it can be useful include:

• Earning above $45,000 a year, where the marginal rate sits above the 15% contributions tax rate
• Having stable income and no high-interest debt
• Wanting to use carry-forward unused cap before it expires
• Looking for ways to reduce taxable income inside the contribution cap
• Planning ahead for retirement and able to lock the money away

Common situations where it may not suit:

• Tight cash flow alongside high-interest debt
• Income below the tax-free threshold, where there's no income tax to reduce
• Needing access to funds before preservation age

Otivo, holder of AFSL and Australian Credit Licence No. 485665, has a salary sacrifice contributions module that helps model what a sensible amount might look like. It factors in income, age, employer contributions, retirement age, household expenses, and contribution limits.

A worked example for the 2025–26 year

Consider Sarah, age 45, earning $120,000 a year. Her marginal tax rate is 32.5%, plus 2% Medicare. Her employer pays $14,400 in SG, which is 12% of $120,000. That leaves $15,600 of room under the $30,000 concessional cap.

Sarah decides to salary sacrifice $300 a week, or $15,600 across the year. Her taxable income drops to $104,400. Without salary sacrifice, that $15,600 would have been taxed at 32.5% plus Medicare. Inside super, contributions tax of 15% applies. The remaining amount lands in her super.

The exact dollar saving depends on Sarah's full tax position. Many Australians in similar situations find the strategy a useful way to grow super inside the cap. The actual outcome depends on individual circumstances.

Frequently asked questions

Can you change or stop salary sacrifice at any time?

Most employers allow employees to vary or stop a salary sacrifice arrangement. The change applies to future pay only, never to wages already earned. Check the written agreement and your employer's payroll cut-off dates.

Does salary sacrifice reduce employer super contributions?

Under current law, employer SG must be calculated on the full pre-sacrifice wage. The salary sacrifice amount cannot count towards the SG obligation. If a pay slip suggests otherwise, it's worth raising with payroll.

What happens if you go over the concessional cap?

The excess is added to assessable income and taxed at the marginal rate. A 15% offset applies for the tax already paid by the fund. An excess concessional contributions charge also applies. You can elect to release up to 85% of the excess from super.

Is salary sacrifice better than a personal deductible contribution?

Both are concessional. Both share the same $30,000 cap. Salary sacrifice happens through payroll automatically. Personal deductible contributions need a valid notice of intent lodged with the fund. The choice often comes down to convenience and cash flow.

Putting it together

Salary sacrifice is one tool among several for growing super inside the concessional cap. It can be tax-effective for many Australians on middle and upper incomes. The right amount depends on income, age, employer contributions, household expenses, and goals. Otivo's super advice modules can help model the figures for an individual situation.

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.