Salary sacrifice is an agreement with your employer to pay part of your pre-tax salary into your super fund instead of paying it to you. The sacrificed amount usually comes out of your taxable income, and it is taxed in the fund at 15% if the fund is a complying taxed fund. For many people that 15% is lower than the tax they would have paid on the same money as salary.

It only works if your employer agrees to it, and it has limits. The sacrificed amount counts toward your concessional contributions cap, together with the super guarantee and any deductible personal contributions. It can also change your HELP repayment income, and high-income earners can face an extra 15% tax under Division 293.

This explainer sets out the ATO's rules, a worked example for 2026-27, and what a calculator should and should not claim. It sits alongside the Never Lose Interest super calculator explainer, the pay calculator and the Age Pension and super guide.

This is general information only. It is not personal advice and it does not take into account your objectives, financial situation or needs. Whether salary sacrifice is worthwhile depends on your tax rate, caps, debts and cash flow.

How does salary sacrifice into super work?

You and your employer agree that part of your salary or wages will be paid to your super fund. The ATO also refers to this as salary packaging or total remuneration packaging.

The ATO's position is clear on two points people often get wrong:

  • Salary sacrifice does not reduce the amount your employer uses to work out your super guarantee. Your employer must still pay the full 12% super guarantee as though the sacrifice arrangement was not in place.
  • Salary sacrifice contributions do not count toward the super guarantee your employer already has to pay. They are additional employer contributions.

The sacrificed amount is not counted as assessable income, so it is not subject to PAYG withholding. It is included in your reportable super contributions and must be included in your tax return. If the contribution is made to a complying super fund, it is not a fringe benefit and is not subject to fringe benefits tax.

There is no general legal cap on how much you can salary sacrifice, unless your employment contract or award says otherwise. The tax caps still apply. If you sacrifice more than the remaining room in your concessional cap, the excess can be taxed at your marginal rate, and leaving the excess in the fund can also count toward your non-concessional cap.

What caps and extra tax should I watch?

Concessional contributions, including the super guarantee, salary sacrifice and deductible personal contributions, are capped at $30,000 in 2025-26 and $32,500 in 2026-27. All of your funds are added together.

If you have unused concessional cap amounts from earlier years, and your total super balance was less than $500,000 at 30 June of the previous financial year, you may be able to carry those amounts forward for up to five years. Check the available amount in ATO online services before you agree a large sacrifice, because the unused cap expires after five years.

Division 293 tax can apply if your Division 293 income plus concessional contributions is more than $250,000. The extra tax is 15% of the amount above that threshold, or 15% of your taxable super contributions, whichever is less. The ATO issues the assessment after it has your tax return and your fund's contribution reports.

Take the ATO's example. Jan's Division 293 income is $240,000 and her Division 293 super contributions are $15,000, a total of $255,000. The amount above the $250,000 threshold is $5,000, which is less than $15,000, so the tax is 15% of $5,000, or $750.

If you also pay Division 293, the concessional tax rate on some or all of your contributions becomes 30% rather than 15%. That is still a concession if your marginal rate plus the Medicare levy is higher than 30%, but the benefit is smaller than it is for someone on a lower income.

What does a $10,000 sacrifice do to take-home pay?

Here is a stylised 2026-27 example for a resident individual with $90,000 of taxable salary, no other income, no HELP debt, no Medicare levy surcharge and no offsets other than the standard treatment of the brackets. The 12% super guarantee of $10,800 is paid on top and is already inside the $32,500 cap, so there is $21,700 of concessional cap room.

Without salary sacrifice:

  • income tax is $4,020 plus 30% of $45,000, which is $17,520
  • the Medicare levy is 2% of $90,000, which is $1,800
  • tax and levy together are $19,320
  • take-home pay, before other deductions, is $70,680
  • the fund receives $10,800, and after 15% contributions tax it retains $9,180

With a $10,000 salary sacrifice, taxable salary falls to $80,000:

  • income tax is $14,520
  • the Medicare levy is $1,600
  • tax and levy together are $16,120
  • take-home pay is $63,880, which is $6,800 lower
  • concessional contributions become $20,800, and after 15% contributions tax the fund retains $17,680, which is $8,500 more than before

In this example you give up $6,800 of cash and the fund, after contributions tax, holds an extra $8,500. The $1,700 difference is the tax concession: 32% income tax plus Medicare, less the 15% fund tax, on $10,000.

Change any of the assumptions and the numbers move. A lower taxable income can bring in the low income tax offset or a lower Medicare levy. A HELP debt is dealt with below. The example also ignores the $1,000 standard deduction that starts in 2026-27, which would slightly reduce taxable income in both cases if you use it.

The extra money is then in super, not in your bank account. You generally cannot withdraw it until you meet a condition of release. That trade-off is the point of the exercise, and it is also the reason salary sacrifice is not automatically the right move if you need the cash for a home deposit, an emergency fund or a higher-interest debt.

Does salary sacrifice reduce my HELP repayments?

Often it does not, or not by as much as people expect.

HELP repayment income includes your taxable income plus, among other amounts, reportable super contributions. Salary sacrifice contributions are reportable. If you sacrifice $10,000, your taxable income may fall by $10,000, but that $10,000 is added back when the ATO works out your repayment income. In a simple case, your HELP repayment stays the same.

The Never Lose Interest HELP repayment explainer sets out the 2025-26 and 2026-27 rates. If you are using a pay calculator to compare sacrifice scenarios, check whether it adds reportable super back into repayment income. A tool that only reduces taxable income will understate the HELP repayment.

How do I set it up, and what should I check?

Ask your employer or payroll team whether they offer a salary sacrifice arrangement, how often you can change the amount, and when contributions will be paid. From 1 July 2026, Payday Super requires the super guarantee to be received by the fund within seven business days after each payday. Confirm with payroll whether your salary sacrifice contributions will be paid on the same cycle. The timing for those extra contributions can differ from the guarantee, depending on the arrangement. The Payday Super explainer sets out what employees should check after each payday.

Before you sign:

  • add up the super guarantee you expect for the year, any extra employer contributions, and the amount you want to sacrifice, and compare the total with your concessional cap, including any carry-forward room
  • confirm the sacrifice will not reduce your super guarantee
  • check the effect on take-home pay, including HELP, private health and any income-tested payments or benefits
  • ask whether your award, contract or package already includes a super amount above the guarantee, so you do not double count it
  • keep the arrangement in writing

If your employer will not offer salary sacrifice, you can still make a personal contribution and, if you are eligible, claim a deduction. The tax outcome can be similar, but the timing and paperwork are different, and the contribution is not an employer contribution.

Frequently asked questions

Is salary sacrifice better than a personal deductible contribution?

The concessional tax treatment can be similar if you are eligible to claim a deduction for a personal contribution. Salary sacrifice reduces PAYG withholding during the year. A deductible personal contribution is usually sorted out in your tax return, so you may wait for a refund. Eligibility, age and work tests can also differ. The better route depends on what your employer will do and on your cash flow.

Does salary sacrifice affect my leave or other entitlements?

It can, if those entitlements are calculated on the salary you are actually paid rather than on your package. That is a matter for your contract, award and employer, not a single ATO rule. Check before you agree a large sacrifice.

What happens if I go over the cap by mistake?

Excess concessional contributions are included in your assessable income and taxed at your marginal rate, with a 15% offset for the tax already paid in the fund. You can elect to have the excess released from the fund. If you leave it in super, it can also count toward your non-concessional cap. The ATO explains this in its concessional cap guidance. It is better to stay inside the cap.

Can I salary sacrifice if I already get 12% super?

Yes. The 12% guarantee still has to be paid, and the sacrificed amount sits on top of it, subject to the cap.

Will I pay less tax in retirement if I salary sacrifice now?

Concessional contributions are taxed at 15% on the way in (or up to 30% if Division 293 applies). Once you are 60 or older, withdrawals of a taxed element from a taxed fund are generally tax-free. That is one reason people use super, but the money is preserved until you meet a condition of release, and investment earnings in accumulation are also taxed in the fund. A calculator should not treat the 15% contributions tax as the only tax you will ever pay.

General information warning

This article is general information only. It is not personal financial product advice or tax advice, and it is not a recommendation to salary sacrifice a particular amount. It does not take into account your objectives, financial situation or needs. Contribution caps, Division 293, HELP and your employer's rules can all change the outcome. Consider speaking with a registered tax agent or a licensed financial adviser before you set up an arrangement.

Sources

Last reviewed: November 2026.