Planning for retirement is one of the most important financial steps Australians can take. Superannuation plays a key role in this plan, and using strategies like salary sacrifice can make a big difference to your retirement savings. By sacrificing a portion of your salary before tax and putting it into super, you can reduce your taxable income and increase your super balance at the same time.
This blog will explain:
- What salary sacrifice into superannuation means
- The contribution caps and rules you must follow
- The tax benefits and savings you can achieve
- Worked examples with calculations
- Long-term impact of salary sacrifice on retirement savings
- Tips to maximise benefits while avoiding risks
Let’s dive deep into how you can maximise your superannuation contributions and tax benefits with salary sacrifice.
What Is Salary Sacrifice Into Superannuation?
Salary sacrifice, also called salary packaging, is an agreement with your employer where you choose to put part of your before-tax salary directly into your super account.
- This contribution is taxed at 15% inside your super fund instead of your usual marginal tax rate (which could be 19%, 32.5%, 37% or even 45%).
- It is in addition to your employer’s Super Guarantee (SG) contribution of 12% of your salary.
- It helps you build wealth for retirement while enjoying immediate tax savings.
Example:
If you earn $90,000 a year and choose to salary sacrifice $5,000:
- Your taxable income reduces to $85,000.
- Instead of paying 32.5% tax on that $5,000 (≈$1,625), it is taxed at only 15% ($750) inside your super.
- Tax saved = $875 each year.
Types of Super Contributions
It’s important to know how contributions are classified.
| Contribution Type | Tax Treatment | Example |
| Employer Super Guarantee (SG) | Concessional (before tax, 15%) | 12% of your ordinary time earnings |
| Salary Sacrifice | Concessional (before tax, 15%) | You request employer to put $100/week into super |
| Personal Deductible Contribution | Concessional if you claim deduction | Adding after-tax money and claiming deduction |
| Non-Concessional Contribution | After-tax (not deductible) | Lump sum from savings or inheritance |
Salary sacrifice is one of the most popular concessional methods because it lowers your taxable income and grows your super.
Also Check: The Importance of Managing Your Super Fund Long Before Retirement
Contribution Caps You Must Know
The government places annual contribution caps to stop people from putting unlimited amounts into super.
- Concessional contributions cap: $30,000 per year (includes employer SG + salary sacrifice + personal deductible contributions).
- Unused cap carry-forward rule: If your super balance is under $500,000, you can carry forward unused concessional caps from the past 5 years.
- Non-concessional cap: $120,000 per year, or up to $360,000 over 3 years using the bring-forward rule (after-tax contributions).
⚠️ If you go over the concessional cap, the excess is added to your taxable income and taxed at your marginal rate.
Tax Benefits of Salary Sacrifice
1. Pay Lower Tax on Contributions
- Salary sacrificed contributions are taxed at 15% inside super.
- If your marginal tax rate is 32.5% or higher, you save money instantly.
2. Reduce Your Assessable Income
- Sacrificing $5,000 means your taxable income is $5,000 less.
- This could help you fall into a lower tax bracket.
3. Compounding Growth Inside Super
- Returns earned inside super are also taxed at concessional rates (maximum 15%).
- Over decades, this means significantly larger balances compared to investing outside super.
Worked Examples: Maximise Your Superannuation Contributions and Tax Benefits With Salary Sacrifice
Example 1: Middle-Income Earner
- Sarah earns: $78,000
- Employer SG: 12% = $9,360
- She sacrifices: $100 per fortnight ($2,600/year)
Impact:
- Taxable income drops from $78,000 → $75,400
- At 32.5% marginal rate, tax saving ≈ $442 in year one
- Over 30 years with 6% return, her super could grow by an extra $112,000
Example 2: Higher-Income Earner
- Jacob earns: $117,000
- Employer SG: $14,040
- He sacrifices: $200 per fortnight ($5,200/year)
Impact:
- Taxable income drops from $117,000 → $111,800
- Tax saving ≈ $910 in year one
- At 6% annual growth, over 25 years he could retire with an extra $230,000+ in super
Example 3: Long-Term Projection
Let’s see how a $5,000 annual sacrifice compounds over 32 years:
| Year | Balance Without Sacrifice | Balance With $5,000 Sacrifice | Difference |
| 5 | $65,000 | $97,000 | +$32,000 |
| 10 | $150,000 | $220,000 | +$70,000 |
| 20 | $395,000 | $590,000 | +$195,000 |
| 32 | $1.08M | $1.60M | +$520,000 |
👉 The power of compounding makes even small yearly sacrifices add up to hundreds of thousands of dollars more in retirement.
Risks and Considerations
While salary sacrifice is beneficial, keep in mind:
- Reduced Take-Home Pay – You’ll have less disposable income now.
- Locked Funds – You can’t access super until retirement or meeting a condition of release.
- Contribution Caps – Exceeding concessional caps leads to extra tax.
- High-Income Earners – If income + super contributions exceed $250,000, contributions are taxed at 30%.
- Investment Risk – Your super grows with investments, which may fluctuate.
Step-By-Step Guide to Salary Sacrifice
- Check with Employer – Confirm they offer salary sacrifice.
- Choose an Amount – Start small (e.g. $50/week) and increase gradually.
- Stay Within Caps – Track contributions via your super fund portal.
- Review Investment Options – Choose the right mix of growth/defensive assets.
- Monitor Annually – Adjust as income and caps change.
- Seek Advice – A financial planner can tailor the strategy to your situation.
How to Maximise Your Benefits
- Start Early: The sooner you contribute, the more time compounding works.
- Use Unused Caps: Carry forward unused concessional contributions for bigger boosts.
- Increase Slowly: Raise your sacrifice when you get pay rises.
- Balance Liquidity: Keep some savings outside super for emergencies.
- Review Fund Fees: High fees reduce your gains, so choose wisely.
Final Thoughts
Salary sacrifice is a smart and tax-effective way to grow your retirement savings in Australia. By diverting part of your pre-tax salary into super:
- You lower your taxable income
- Pay only 15% tax on contributions (instead of up to 45%)
- Benefit from compounding over decades
Even a small regular contribution like $100 per fortnight can mean tens of thousands of extra dollars in retirement.
If you want to retire comfortably, consider starting salary sacrifice today. Check your employer’s options, stay within contribution caps, and review your strategy regularly. For personalised advice, consult a licensed financial adviser.
👉 Remember: The earlier you start, the bigger the rewards.
