What Is Salary Sacrifice in Australia?

What Is Salary Sacrifice?

Salary sacrifice (also called salary packaging) is an arrangement where you agree with your employer to redirect a portion of your pre-tax salary into your superannuation fund instead of receiving it as take-home pay. Because super contributions are taxed at a flat 15% inside the fund — rather than your marginal income tax rate — you can significantly reduce the amount of tax you pay.

Salary sacrifice into super is one of the most effective and widely-used tax strategies available to Australian employees. It is especially beneficial if your marginal tax rate is 30% or higher, meaning you earn above $45,000 per year.

How Salary Sacrifice Works

When you salary sacrifice, the redirected amount is paid into your super fund before income tax is calculated on your pay. Your super fund then pays 15% contributions tax on the amount, which is almost always lower than the marginal tax rate you would have paid on that income. The difference is your tax saving.

Worked Example: $100,000 Salary

Salary Sacrifice Contribution Limits

The total concessional (before-tax) contribution cap for 2025–26 is $30,000 per financial year. This cap includes:

• Your employer's compulsory Super Guarantee (currently 12%)
• Any salary sacrifice contributions you make
• Any personal contributions you claim as a tax deduction

For example, on a $100,000 salary your employer contributes $12,000 in SG, leaving $18,000 of room for salary sacrifice before hitting the cap. If you have unused cap amounts from previous years (carry-forward rule), you may be able to contribute more — check with your super fund or the ATO.

Does Salary Sacrifice Reduce Income Tax?

Yes. Because salary sacrifice is deducted from your gross pay before income tax is calculated, it directly reduces your taxable income. The more you sacrifice (up to the cap), the lower your taxable income and the less income tax you pay. The table below shows estimated annual tax savings at different salary levels.

Does Salary Sacrifice Affect HECS Repayments?

This is a common misconception. Salary sacrifice into super does not reduce your HECS-HELP repayment. The ATO calculates your repayment income by adding back reportable super contributions (including salary sacrifice) to your taxable income. Your HECS repayment income includes:

• Taxable income
• Reportable fringe benefits amounts
• Reportable super contributions (including salary sacrifice above the SG base)
• Total net investment losses

So while salary sacrifice reduces your income tax, it will not lower your HECS repayment obligation. For more on how HECS repayments are calculated, see our HECS-HELP Repayment Calculator.

Advantages of Salary Sacrifice

Lower income tax. Every dollar you salary sacrifice is taxed at 15% inside super instead of your marginal rate. For anyone earning above $45,000, this means an immediate tax saving on the sacrificed amount.

Boost your retirement savings. Salary sacrifice grows your super balance faster because contributions go in before tax. Over decades, the compounding effect of larger contributions can significantly increase your retirement balance.

Simple to set up. Most employers can arrange salary sacrifice with a simple form or payroll update. Once in place, contributions are automatic — you do not need to make separate deposits or claim deductions at tax time.

Potential Downsides

Reduced take-home pay. The money you sacrifice goes into super, not your bank account. You cannot access it until you reach your preservation age (currently 60 for most people), so you need to ensure you can cover your living expenses.

Contribution cap risk. If your total concessional contributions exceed $30,000 in a financial year, the excess is added to your assessable income and taxed at your marginal rate (with a 15% offset). You must track your employer SG plus any other concessional contributions to stay within the cap.

Does not reduce HECS repayments. As explained above, salary sacrifice does not lower your HECS repayment income. If reducing HECS repayments is your goal, salary sacrifice is not an effective strategy.