How It Works, How Much Tax You Actually Save, and When It’s the Right Move – 2026–27 Guide
Salary sacrifice into superannuation is the most widely available tax reduction strategy in Australia – and one of the most underused. Most employed Australians have access to it through their workplace, it requires no investment knowledge to implement, and the tax saving is immediate, guaranteed, and compounding.
Yet surveys consistently show that a majority of Australian workers either don’t salary sacrifice at all, or contribute far less than the cap allows. The reasons vary: confusion about how it works, fear of reduced take-home pay, uncertainty about whether it’s worth it at their income level, or simply never having got around to it.
This guide answers the question directly. We explain how salary sacrifice works, show exactly how much tax you save at every income bracket using the current 2026–27 rates, cover the $32,500 concessional cap, explain Division 293 tax, and walk through the carry-forward contributions strategy that’s particularly powerful for people who have missed years of contributions. We also cover the situations where salary sacrifice is not the right answer.
If you are an Australian employee earning above $45,000 per year and are more than 5 years from retirement, salary sacrifice into super will almost certainly save you tax and build meaningful additional retirement savings. The higher your income, the larger the benefit. The main reason NOT to do it is if you have high-interest debt, an urgent short-term cash need, or are already at or near the $32,500 concessional cap (including employer SG). Read on for the full picture.
1. What Is Salary Sacrifice Into Super?
Salary sacrifice into superannuation (also called salary packaging or pre-tax super contributions) is an arrangement between you and your employer where you agree to redirect part of your pre-tax salary directly into your super fund, instead of receiving it as take-home pay.
The contribution goes into super before income tax is applied. Inside the fund, it’s taxed at 15% – the concessional contributions tax rate – instead of at your marginal income tax rate. The difference between those two rates is your immediate tax saving.
Critically, salary sacrifice contributions do not replace your Superannuation Guarantee contributions. Your employer is legally required to pay SG contributions (currently 12% of your ordinary time earnings) on top of any salary sacrifice arrangement, as if no sacrifice had occurred. Both flow into your super fund.
Emma earns $95,000. Her employer pays $11,400 SG (12%) into her super. Emma arranges to salary sacrifice a further $10,000 per year. Result: Emma's taxable income drops from $95,000 to $85,000. She pays approximately $3,200 less in income tax (32% marginal rate, including Medicare). Inside super, $10,000 is taxed at 15% = $1,500. Net cost of the $10,000 into super: approximately $6,800 in reduced take-home pay. Effective return: she added $8,500 (after 15% tax) to her super for a take-home cost of $6,800 - a 25% immediate return before any investment growth.
2. The Tax Saving at Every Income Level – 2026–27 Brackets
The tax saving from salary sacrifice depends on your marginal tax rate. The higher your income, the greater the difference between your marginal rate and the 15% contributions tax inside super.
From 1 July 2026, Australia’s income tax brackets (for residents) are:
Taxable income | Marginal rate | Rate incl. Medicare levy |
$0 – $18,200 | 0% | 0% |
$18,201 – $45,000 | 15% | 17% |
$45,001 – $135,000 | 30% | 32% |
$135,001 – $190,000 | 37% | 39% |
$190,001+ | 45% | 47% |
Source: ATO tax rates 2026–27, effective 1 July 2026. The second bracket dropped from 16% to 15% from 1 July 2026 under the legislated cost-of-living cuts. Medicare levy of 2% applies for most taxpayers on all taxable income above ~$29,207.
The tax saving from salary sacrifice is the difference between your marginal rate (including Medicare) and 15% (the rate inside super). The table below shows the real saving per $1,000 of salary sacrifice at each income level:
Annual income | Marginal rate (incl. Medicare) | Effective rate inside super | Tax saving per $1,000 sacrificed |
Below $45,000 | 17% | 15% | $20 – minimal benefit |
$45,001 – $135,000 | 32% | 15% | $170 per $1,000 |
$135,001 – $190,000 | 39% | 15% | $240 per $1,000 |
Above $190,000 | 47% | 15% | $320 per $1,000 |
Above $250,000 (Div 293) | 47% | 30% (Div 293) | $170 per $1,000 |
Tax saving calculated as marginal rate (including 2% Medicare levy) minus 15% contributions tax, per $1,000 of salary sacrificed. Division 293 tax applies an additional 15% on concessional contributions where income plus contributions exceeds $250,000, taking the effective super contribution rate to 30%. Source: ATO.
The sweet spot is the $45,001–$135,000 income bracket, where the majority of Australian workers sit. At this level, every $1,000 sacrificed into super saves $170 in tax – a 17% immediate return on the dollar redirected to super. On a $10,000 salary sacrifice, that’s $1,700 in genuine tax savings per year, before any investment return.
Below $45,000 the benefit is minimal – just $20 per $1,000 – because the marginal rate and contributions tax are almost the same. For workers in this income range, a personal after-tax contribution (which may attract the government co-contribution of up to $500) is often more beneficial than salary sacrifice.
Salary sacrifice makes most sense once your taxable income exceeds $45,000, where the marginal rate jumps to 30% (32% including Medicare). Below this, the difference between your marginal rate and the 15% super tax is so small that the loss of immediate cash flexibility often outweighs the benefit. If you're earning $38,000, focus on reducing debt and building emergency savings before worrying about salary sacrifice.
3. The $32,500 Concessional Cap – Rules, Room, and What Counts
All concessional (pre-tax) super contributions – including employer SG, salary sacrifice, and any personal contributions you claim as a tax deduction – are subject to an annual cap.
From 1 July 2026, that cap is $32,500 per person per financial year, indexed up from $30,000 following AWOTE indexation.
What Counts Towards the Cap
- Employer SG contributions: Your employer’s 12% contributions count first. On a $90,000 salary, that’s $10,800 – leaving $21,700 of cap room for salary sacrifice.
- Salary sacrifice contributions: Everything you redirect from pre-tax salary.
- Personal deductible contributions: After-tax contributions for which you claim a personal tax deduction (available to self-employed people and some employees).
- Employer contributions from all employers: If you have multiple jobs, all employer SG contributions across all employers count toward your single cap.
Calculating Your Available Cap Room
Annual salary | SG paid (12%) | Cap used by SG | Available for salary sacrifice |
$60,000 | $7,200 | $7,200 | $25,300 |
$80,000 | $9,600 | $9,600 | $22,900 |
$100,000 | $12,000 | $12,000 | $20,500 |
$120,000 | $14,400 | $14,400 | $18,100 |
$150,000 | $18,000 | $18,000 | $14,500 |
$200,000 | $24,000 | $24,000 | $8,500 |
$270,000+ | $32,500 | $32,500 | Nil – SG alone fills cap |
Cap room = $32,500 (2026–27 cap) minus employer SG. If you earn $270,000+, your employer SG alone meets or exceeds the cap and salary sacrifice is unavailable without exceeding it. Figures are approximate. Always confirm cap room via myGov or your super fund.
What Happens If You Exceed the Cap
Exceeding the concessional cap has a clear penalty structure. The ATO identifies excess contributions and includes them in your assessable income for that year, taxed at your marginal rate (rather than 15%). A 15% tax offset is applied – to reflect the tax already paid in the fund – but the net effect is that the excess is taxed at your marginal rate. An excess concessional contributions charge may also apply.
You have two options when notified of excess concessional contributions: leave the excess in the fund (where it counts against your non-concessional cap), or withdraw up to 85% of it. Most people choose to withdraw. Either way, exceeding the cap is a solvable problem, not a disaster – but it’s better avoided through careful tracking.
Log into myGov → ATO Online Services → Super → Information → 'Concessional contributions'. The ATO updates this as your fund reports contributions, though there can be a lag of several weeks. Your super fund's online portal may show a more current view of contributions received. If you're close to the cap late in the financial year, err on the side of caution and pause contributions rather than risk exceeding it.
4. Carry-Forward Contributions: The Strategy Most Australians Don’t Know About
If your total superannuation balance was below $500,000 on 30 June of the previous financial year, you can access unused concessional contribution cap amounts from the previous five financial years – and contribute them all in a single year, on top of the standard $32,500 cap.
This carry-forward provision is one of the most powerful and underused tax strategies in Australian superannuation. It’s particularly valuable for:
- Women returning to full-time work after career breaks, who have significant unused cap space from years of lower contributions
- Anyone who received a large bonus, redundancy payment, or capital gain and wants to reduce taxable income in a high-income year
- Business owners or the self-employed who have had variable income years and are now in a strong position
- Pre-retirees in their 50s who are finally in a position to catch up
How Far Back Can You Go?
Financial year | Cap that year | Expires |
2021–22 | $27,500 | 30 June 2027 |
2022–23 | $27,500 | 30 June 2028 |
2023–24 | $27,500 | 30 June 2029 |
2024–25 | $30,000 | 30 June 2030 |
2025–26 | $30,000 | 30 June 2031 |
2026–27 (current) | $32,500 | Contributes to pool |
Unused cap from each year expires after 5 years if not used. Important: unused amounts from 2020–21 expired on 30 June 2026. Source: ATO.
A Worked Example
Sophie is 47, earns $110,000, and has a super balance of $195,000. She took a career break from 2022–24 and made minimal voluntary contributions during that period. Her employer paid SG in all years.
Year | Cap | Used (SG only ~$11k/yr) | Unused cap |
2021–22 | $27,500 | $11,000 | $16,500 |
2022–23 | $27,500 | $11,000 | $16,500 |
2023–24 | $27,500 | $11,200 | $16,300 |
2024–25 | $30,000 | $12,000 | $18,000 |
2025–26 | $30,000 | $12,000 | $18,000 |
Total available in 2026–27 | Standard cap: $32,500 | Carry-forward pool: ~$85,300 | Max concessional this year: ~$117,800 |
Sophie’s exact carry-forward amount is available via ATO online services. She can contribute up to ~$117,800 in concessional contributions in 2026–27, saving tax at her 39% marginal rate (including Medicare) vs 15% inside super. On $85,000 of catch-up contributions: estimated tax saving of approximately $20,400.
Sophie doesn’t have to use all her carry-forward room at once. She might choose to salary sacrifice an extra $30,000 this year on top of her employer SG, using part of her carry-forward pool to reduce her taxable income meaningfully while staying within a comfortable cash flow.
Log into myGov → ATO Online Services → Super → Information → 'Carry forward concessional contributions'. The figure shown is your available carry-forward amount on top of this year's $32,500 cap. This data is based on your fund's reporting to the ATO - if you've recently made contributions, allow 4–8 weeks for them to appear.
5. Division 293 Tax: High Earners, Super Is Still Worth It
If your combined income and concessional super contributions exceed $250,000 in a financial year, the ATO applies Division 293 tax – an additional 15% tax on your super contributions. This takes the effective tax rate on those contributions from 15% to 30%.
The Division 293 tax applies only to the portion of contributions that tips the total over $250,000. It’s assessed by the ATO after you lodge your tax return and charged separately to you personally (not deducted from your super fund).
Is Salary Sacrifice Still Worth It Above $250,000?
Yes, for most high earners. At 47% marginal rate (45% + Medicare), paying 30% on super contributions still saves 17 cents per dollar compared to receiving it as income. The calculation is less favourable than for those below $250,000, but it remains positive.
The real consideration at this income level is what else you might do with the money. If you have investment loans, trust structures, or other tax-effective vehicles available, those alternatives may produce better after-tax outcomes than a 17-cent saving. This is an area where personalised advice is essential.
Income | Marginal rate (incl. Medicare) | Rate inside super (after Div 293) | Net saving per $1,000 |
$250,000–$190,000 slice | 39–47% | 15% | $240–$320 |
Above $250,000 (Div 293 applies) | 47% | 30% | $170 |
Division 293 tax brings the effective super contribution rate to 30% on contributions that push income above $250,000. Even at 30%, the saving vs 47% marginal rate is $170 per $1,000. Source: ATO.
6. How to Set Up Salary Sacrifice With Your Employer
Salary sacrifice requires an agreement between you and your employer before the income is earned. You cannot salary sacrifice income you’ve already received – the arrangement must be prospective.
Step-by-Step
- Step 1 – Calculate your cap room: Work out how much room you have below the $32,500 cap after your employer SG. Check myGov for carry-forward amounts if relevant.
- Step 2 – Decide your sacrifice amount: Choose a dollar amount per pay period that fits your budget. Be conservative initially – you can increase it, but reduced take-home pay takes adjustment. Common starting points: $200–$500 per fortnight.
- Step 3 – Contact your payroll team: Ask for the salary sacrifice form or process. Most medium-to-large employers have a standard form. Specify the dollar amount per pay period (not a percentage).
- Step 4 – Provide your super fund details: Confirm your fund name, ABN, and member number. The salary sacrifice goes to the same fund as your regular employer SG unless you direct otherwise.
- Step 5 – Confirm in writing: Ask your employer to confirm when the sacrifice will begin and the first payment date. Check that the contribution appears in your super fund within a few weeks of your first post-sacrifice pay.
- Step 6 – Review at year end: Before 30 June, confirm your total contributions are on track. If you’re getting a large bonus in June, calculate whether salary sacrificing more in July–May and pausing for June avoids accidentally exceeding the cap.
Not all employers offer a formal salary sacrifice arrangement, particularly smaller businesses. If yours doesn't, you can achieve a similar tax outcome by making personal after-tax contributions to your super and then claiming them as a personal tax deduction in your tax return (using a 'Notice of Intent to Claim a Deduction' form with your fund). The result is the same: the contribution is treated as concessional and taxed at 15% inside the fund, reducing your taxable income by the same amount. The process is more manual but the outcome is identical.
7. Payday Super: What Changes From 1 July 2026
From 1 July 2026, the Payday Super reforms require employers to pay super contributions at the same time as salary and wages – within 7 business days of payday – rather than the previous quarterly schedule.
This change has two practical implications for salary sacrifice:
- Easier real-time tracking: With super contributions landing every pay cycle, you can see exactly how much is accumulating in your fund and monitor for any discrepancies more quickly than under quarterly payments.
- Cap timing: Contributions count toward the cap in the year the fund receives them. Under payday super, there’s less risk of a large quarterly employer contribution landing unexpectedly close to your cap ceiling. Contributions are smoother and more predictable throughout the year.
Payday super also matters for employees in casualised or lower-paid roles – particularly women in part-time or service industry work – where employer non-compliance has historically been most common. Real-time payment dramatically reduces the window for employer underpayment to go undetected.
8. When Salary Sacrifice Is NOT the Right Answer
Salary sacrifice is not appropriate for every situation. Be cautious if:
- You have high-interest debt: A credit card charging 20% interest or a personal loan at 15% will cost you more than the tax saving on salary sacrifice can generate. Pay high-interest debt first. Home loans are different – at current variable rates of 6–7%, salary sacrifice tax savings can outperform mortgage prepayment.
- You’re on a very low income: Below approximately $45,000, the difference between your marginal rate and 15% contributions tax is too small to justify the sacrifice of immediate cash flow. A government co-contribution from personal after-tax contributions is likely more valuable.
- You’re approaching the cap and getting a bonus: If a bonus will push your income significantly higher and you’ve already sacrificed near the cap, check your total concessional contributions before receiving the bonus. Excess contributions are taxable at your marginal rate.
- You need the cash soon: Money in super is locked away until preservation age (60 in most cases). If you’re saving for a house deposit, building an emergency fund, or have a major near-term expense, maintaining take-home pay may be more important than the tax saving.
- Your employer incorrectly reduces SG: Some employers (incorrectly) use salary sacrifice as an opportunity to reduce their SG contributions. Your employer must pay SG on your ordinary time earnings as if no sacrifice arrangement exists. If your SG drops when you start salary sacrificing, flag it immediately and confirm the ATO’s rules apply.
Legislation requires employers to pay SG on your base earnings, not your post-sacrifice salary. However, some employment contracts base SG on a 'package' that already includes super - in which case salary sacrifice can effectively reduce the SG contribution amount. Before starting a salary sacrifice arrangement, confirm in writing with your payroll team that your SG will not be affected. If in doubt, a financial planner or the ATO's online resources can help you verify.
9. Three Worked Examples
Example 1: The Mid-Career Professional
Profile | Details |
Name | Michael, 42 |
Annual salary | $105,000 |
Employer SG (12%) | $12,600 |
Salary sacrifice | $15,000/yr ($577/fn) |
Total concessional | $27,600 (within $32,500 cap) |
Taxable income | $90,000 (down from $105,000) |
Annual income tax saving | ~$4,800 (32% on $15,000) |
Take-home pay reduction (after-tax) | ~$10,200/yr ($392/fn) |
Real cost of $15,000 into super | ~$10,200 in reduced take-home |
Michael adds $15,000 to super at an effective cost of $10,200 in take-home pay – he gets $12,750 net of 15% contributions tax into super for $10,200 out of pocket. The $2,550 difference is pure tax saving.
Example 2: The Pre-Retiree Catch-Up
Profile | Details |
Name | Sandra, 56 |
Annual salary | $130,000 |
Super balance | $310,000 (under $500k threshold) |
Available carry-forward (est.) | $40,000 unused from prior years |
Standard cap 2026–27 | $32,500 |
Employer SG (12%) | $15,600 |
Salary sacrifice room | $16,900 (standard cap) |
Total with carry-forward | Up to ~$56,900 this year |
Marginal rate on sacrifice | 39% (incl. Medicare) |
Annual tax saving (on $16,900 sacrifice) | ~$4,056 per year |
Sandra maximises her regular salary sacrifice room for a reliable annual saving, with the option to make a larger personal deductible contribution using carry-forward space if she receives a bonus or capital gain in the year.
Example 3: The Young Earner
Profile | Details |
Name | Jake, 28 |
Annual salary | $72,000 |
Employer SG (12%) | $8,640 |
Available for sacrifice | $23,860 |
Should he sacrifice? | Yes – in the 32% bracket |
Suggested starting amount | $200/fn ($5,200/yr) |
Annual tax saving | ~$884 (17% on $5,200) |
Balance at 67 vs no sacrifice (40 yrs, 7% growth) | ~$800k vs ~$600k (illustrative) |
Recommendation | Start modest, increase by $50/fn each year, review annually |
Jake’s $884 annual tax saving is modest, but the compounding effect of $5,200 extra per year at 7% over 40 years is substantial. Starting early and increasing contributions gradually builds the habit and the balance. Illustrative projection only.
Is Salary Sacrifice the Right Strategy for You?
Salary sacrifice into super is one of the very few strategies available to most Australian workers that simultaneously reduces income tax today and builds retirement wealth for tomorrow. For anyone earning above $45,000 and more than a decade from retirement, the question is rarely whether to salary sacrifice – it’s how much, structured how.
The right amount depends on your income, your tax position, how much employer SG you’re already receiving, any carry-forward room you have, and your cash flow position. Too little and you leave money in the tax office’s pocket. Too much and you reduce take-home pay beyond what’s comfortable.
At LIFE Financial Planners, we help Perth workers and pre-retirees work through exactly this calculation – identifying the optimal sacrifice amount, structuring carry-forward strategies where applicable, and integrating salary sacrifice into a broader retirement income plan.
Call (08) 9322 1882 or email admin@lifefinancialplanners.com to book an obligation-free conversation.
Frequently Asked Questions
How much should I salary sacrifice into super?
The right amount depends on your income, your available cap room (the $32,500 cap less your employer SG), your cash flow, and your retirement goals. As a starting point: if you’re in the 32% marginal bracket (income $45,000–$135,000), sacrificing enough to claim your full cap room is often the most tax-effective move. If that’s too much cash flow impact, start with $200–$500 per fortnight and increase over time. The ATO’s myGov tool shows exactly how much cap room you have.
Does salary sacrifice reduce my take-home pay?
Yes, but by less than you might expect. Because salary sacrifice reduces your taxable income, the reduction in take-home pay is smaller than the sacrifice amount. On a $10,000 sacrifice at a 32% marginal rate, your take-home pay reduces by approximately $6,800 – the other $3,200 would have gone to the ATO as income tax. You’re essentially redirecting tax dollars into super.
Can my employer refuse salary sacrifice?
Yes. Salary sacrifice is an agreement between you and your employer, and employers are not legally required to offer it. Most medium and large employers do, but small businesses may not have the payroll infrastructure to accommodate it. If your employer doesn’t offer salary sacrifice, you can make personal after-tax contributions and claim a personal tax deduction instead – achieving the same tax outcome through a different mechanism.
What is the concessional contributions cap for 2026–27?
The concessional contributions cap is $32,500 for the 2026–27 financial year (from 1 July 2026), up from $30,000 in 2025–26. This cap includes all concessional contributions: employer SG, salary sacrifice, and personal contributions you claim as a tax deduction. The $32,500 applies to all contributions across all your super funds combined. Source: ATO contributions caps page.
Can I salary sacrifice if I'm self-employed?
Not through a formal salary sacrifice arrangement, since there’s no employer to make the arrangement with. However, self-employed people can contribute directly to their super fund and claim a personal tax deduction for those contributions – achieving the same tax treatment as salary sacrifice. The contribution is taxed at 15% inside the fund and the deduction reduces your assessable income at your marginal rate. The same $32,500 concessional cap applies.
What is Division 293 tax?
Division 293 is an additional 15% tax on super contributions (concessional) for people whose combined income and concessional contributions exceed $250,000 in a financial year. It effectively raises the tax rate inside super from 15% to 30% for the portion that exceeds the threshold. Salary sacrifice is still worthwhile at this income level – 30% is substantially below the 47% top marginal rate – but the saving per dollar is smaller than at lower incomes. The ATO notifies you separately of any Division 293 liability after you lodge your return.
This article contains general information only and does not take into account your personal financial situation, needs, or objectives. Tax rates, contribution caps, and superannuation rules cited reflect the 2026–27 financial year (from 1 July 2026) based on ATO sources current as at June 2026, and are subject to legislative change. All worked examples are illustrative only and do not constitute personal financial advice. Super contributions are preserved until preservation age and are subject to the rules applicable at the time of access. Before making changes to your salary, super contributions, or tax arrangements, you should obtain advice from a licensed financial adviser and/or registered tax agent. LIFE Financial Planners holds AFSL 296 182.
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