Salary sacrifice
An arrangement where you swap part of your pre-tax salary for a benefit such as extra super, lowering your taxable income.
Salary sacrifice is a formal agreement with your employer to receive less cash salary in exchange for a benefit paid from pre-tax income. Superannuation is by far the most common, though cars, laptops, and other items can qualify.
Because the money never reaches your taxable income, you are taxed on a smaller amount. Sacrificed super is instead taxed at 15% inside the fund, which is lower than every marginal rate above the tax-free threshold.
The arrangement has to be agreed before you earn the income. You cannot look back at money already paid to you and reclassify it as sacrificed — the ATO treats that as ordinary salary.
The trade-off in one line
Sacrificing $200 per fortnight on a 30% marginal rate reduces your take-home pay by about $140, while $170 lands in super after contributions tax. You give up $140 to gain $170.
The bit people get wrong
Salary sacrifice reduces your taxable income but not your HECS repayment income — sacrificed amounts are added back. Someone with a student loan can lower their income tax and still see their HECS repayment rise.
Common questions
Does salary sacrifice reduce my employer's super contributions?
It should not. Since 2020, employers must calculate the Super Guarantee on your pre-sacrifice salary, so sacrificing cannot legally reduce your compulsory entitlement.
Is salary sacrifice always worth it?
It works best at higher marginal rates, where the gap between your rate and the 15% contributions tax is widest. The trade-off is that the money is locked away until you meet a condition of release.
Can I stop or change the arrangement?
Yes, by agreement with your employer, though changes apply prospectively. Review it after any pay rise so combined contributions stay under the $30,000 concessional cap.
Run your own numbers