Salary Sacrifice to Super: Boost Your Retirement While Cutting Tax
Salary sacrificing to superannuation is one of Australia's most powerful tax strategies. By directing pre-tax income to super, you can significantly reduce your tax bill while building retirement wealth faster.
How Salary Sacrifice Works
Instead of receiving your full salary and paying income tax on it, you arrange with your employer to redirect a portion directly to your super fund. This amount:
- Comes out of your pre-tax salary
- Is taxed at 15% in your super fund (concessional contributions tax)
- Grows in a low-tax environment (15% on earnings, 0% in pension phase)
Example: $10,000 Salary Sacrifice
Without salary sacrifice:
$10,000 salary → $6,300 after 37% marginal tax → invest outside super
With salary sacrifice:
$10,000 to super → $8,500 after 15% contributions tax → grows in super
Immediate benefit: $2,200 more invested
Who Benefits Most?
Salary sacrifice is most effective when your marginal tax rate is significantly higher than 15%. The bigger the gap, the greater the tax saving:
- $45,001 - $135,000 income (32.5% + Medicare): Save ~19.5% on each dollar sacrificed
- $135,001 - $190,000 income (37% + Medicare): Save ~24% on each dollar sacrificed
- $190,001+ income (45% + Medicare): Save ~32% on each dollar sacrificed
Note: High income earners ($250,000+) pay an extra 15% Division 293 tax on super contributions, reducing the advantage. But even at 30% total, it's still better than 47%.
Contribution Caps
Salary sacrifice counts toward your concessional contributions cap:
- Standard cap: $30,000 per year (2024/25)
- Includes: Employer SG contributions + salary sacrifice + personal deductible contributions
- Carry forward: If your super balance is under $500,000, you can use unused cap from the previous 5 years
Setting Up Salary Sacrifice
- Check your employer's policy: Most large employers offer this, but processes vary
- Calculate your cap space: Don't forget your employer already contributes 11.5% (2024/25)
- Complete the paperwork: Usually a simple form to HR or payroll
- Monitor throughout the year: Adjust if your income changes
Things to Watch Out For
Preservation Rules
Money in super is locked until you reach preservation age (60 for most) and meet a condition of release. Don't sacrifice money you'll need sooner.
Award/Enterprise Agreement Limits
Some awards require employer super contributions to be calculated on your full salary, not your reduced salary. Check your situation.
Impact on Other Benefits
Lower reportable income may affect borrowing capacity or government benefits tied to income.
How Talk Through Wealth Helps
Optimise your salary sacrifice strategy:
- Calculate the optimal sacrifice amount for your income
- Track contribution cap usage including employer SG
- Model carry-forward cap opportunities
- See the long-term impact on your super balance
- Compare salary sacrifice to other contribution strategies
Optimise Your Super Contributions
Join the waitlist to model salary sacrifice in your retirement plan.
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