Salary sacrifice is one of the simplest tax breaks an Australian employee can use. You agree with your employer to pay part of your salary into super — or into another approved benefit — before income tax is taken out. The sacrificed amount is taxed differently, and for most people, more lightly. This guide explains how the arrangement works, where the tax saving comes from, and the limits to watch.
What salary sacrifice actually is
Salary sacrifice is a formal arrangement between you and your employer where you give up part of your pre-tax salary in exchange for an equivalent benefit. The most common benefit is an extra contribution to your super fund — but it can also be a car under a novated lease, a portable laptop, or work-related items. The defining feature is the same in every case: the money is redirected before it hits your bank account, so it never counts as ordinary income for PAYG purposes.
That single fact — that the sacrificed amount is no longer counted as your assessable income — is the whole reason the tax outcome changes.
The super-and-other-benefit split
Salary sacrifice splits cleanly into two categories, and the tax rules differ for each.
- Super salary sacrifice. The sacrificed amount goes into your super fund as an employer contribution and is taxed inside the fund at the concessional 15% rate (30% for very high earners — see Division 293 below). This is where the big tax saving usually sits.
- Other benefits. Non-super items — a novated-lease car, school fees, or expense-payment fringe benefits — are generally fringe benefits. Your employer is liable for fringe benefits tax (FBT) on most of them, and they're often only worthwhile when the FBT cost is small (as with electric novated-lease cars under the FBT exemption) or when the benefit is genuinely work-related and FBT-free.
Most employee salary sacrifice in Australia is to super. The rest of this guide focuses on that, with a short note on novated leases at the end.
Where the tax saving comes from
The saving is the gap between your marginal income tax rate and the 15% tax that applies inside super. Take any extra dollar of your salary. If you don't sacrifice it, it's taxed at your marginal rate plus the 2% Medicare levy — somewhere between 18% and 47% depending on your income. If you sacrifice it into super, it's taxed at 15% as it enters the fund. The difference is your tax saving, on every dollar redirected.
Crucially, the rest of your tax situation is unchanged. Your employer must still pay your full Super Guarantee on top — they can't reduce it because you're salary sacrificing.
The concessional contributions cap
The amount you can put into super at the concessional 15% rate is capped each year. The cap is called the concessional contributions cap, and it covers all concessional contributions combined — your employer's Super Guarantee, your salary sacrifice and any personal contributions you claim as a tax deduction.
| Financial year | Concessional contributions cap |
|---|---|
| 2025–26 | $30,000 |
| 2026–27 | $32,500 (from 1 July 2026) |
To work out the room you have for salary sacrifice, subtract your employer's annual Super Guarantee from the cap. For someone earning $80,000 in 2025–26, the SG (at 12%) is $9,600, leaving $20,400 of headroom.
Go over the cap and the excess is taxed at your full marginal rate, with an interest charge on top — wiping out the saving. The carry-forward rule can help here: if your super balance was under $500,000 on the previous 30 June, you can use unused cap from the past five financial years to make a larger contribution in a single year without breaching the cap.
A worked example — the take-home trade-off
The mechanics make most sense when you see them in numbers. Take someone on a $100,000 salary in 2025–26 who decides to salary sacrifice $10,000 into super. Their marginal income tax rate is 30% on the top of that income, plus 2% Medicare levy — so 32% on the sacrificed dollar.
$10,000 of salary becomes $8,500 in super (after the 15% contributions tax), instead of about $6,800 in your bank account (after income tax and Medicare levy at 32%). You're $1,700 better off in dollar terms — but the money is locked up in super until preservation age.
For higher earners the gap is bigger. The same $10,000 sacrifice on income taxed at 39% (the 37% bracket plus 2% Medicare) saves $2,400 in tax, since you avoid 39% and pay 15%. At 47%, the saving on each dollar sacrificed is 32c — a third of the contribution back as a tax benefit.
Division 293 — the catch for high earners
If your income plus your concessional contributions go over $250,000 in a financial year, you pay an additional 15% tax — Division 293 — on the part of the contributions that pushed you over. That lifts the effective tax rate on those sacrificed dollars from 15% to 30%.
Even at 30% the saving usually still beats the top marginal rate of 47%, which is why salary sacrifice remains attractive for high earners. But the gap is narrower, and Division 293 should be modelled before sacrificing large amounts at that income level.
Things to watch before you set one up
- It must be agreed in advance. Salary sacrifice has to apply to income you haven't yet earned — you can't retrospectively redirect last month's pay.
- Cash flow. The sacrificed amount really does come out of your take-home pay. Make sure the lower in-hand figure still covers your bills.
- Preservation. Super is locked up until you reach preservation age (between 55 and 60 depending on when you were born) and meet a condition of release. The tax saving comes with a long wait.
- The cap covers everything combined. Including SG. The fund treats contributions as counting toward the cap in the year they're received — late June contributions sometimes arrive in the next financial year, which can matter.
- Government co-contribution and spouse contribution. If your income is modest, after-tax personal contributions can also attract the government co-contribution — a separate path that may suit better than salary sacrifice.
A note on novated leases and other benefits
Salary sacrificing a car under a novated lease, or other non-super items, follows different rules. Most non-cash benefits are subject to fringe benefits tax in your employer's hands, which is then usually recovered from you. The arithmetic only works in your favour when the benefit is FBT-exempt or concessionally taxed — the most common live example is the electric vehicle FBT exemption — or when the benefit is otherwise tax-free (some work-related portable electronic items, work tools, additional super). For everything else, the tax benefit usually disappears once FBT is paid.
The bottom line
Salary sacrifice into super is one of the most reliable tax breaks in the Australian system. You swap income taxed at your marginal rate for money taxed at 15% inside super, within the annual concessional cap. The trade-off is access — that money is locked up until you retire. The simplest way to test what it would cost you in take-home pay, and save you in tax, is to run your salary through the salary sacrifice calculator.