Salary Sacrifice Super: How to Maximise Contributions Without Breaching the Cap

You work hard for your salary. But if you are in a higher tax bracket, a significant portion of every dollar you earn goes straight to the ATO before you ever see it. Salary sacrifice into superannuation is one of the most straightforward and effective strategies available to reduce the tax you pay today, while simultaneously accelerating the retirement savings you will need tomorrow.

Despite this, salary sacrifice remains underutilised. Some employees do not know it is available to them. Others set it up once and never review it. And many are unsure exactly how it interacts with contribution caps, which is where things can go wrong. For employees and business owners across Newcastle and the Hunter region, getting this right can make a material difference to your retirement position. Our superannuation advice team works through this with clients regularly.

This article takes a close look at how salary sacrifice works, the rules that govern it, and how to make the most of it without inadvertently breaching the contribution limits that apply.

How salary sacrifice into super works

Salary sacrifice, sometimes called salary packaging, involves an agreement with your employer to redirect a portion of your pre-tax salary directly into your superannuation fund, rather than receiving it as take-home pay.

The tax benefit is straightforward: contributions made via salary sacrifice are taxed at the concessional superannuation tax rate of 15% within your fund, rather than at your personal marginal income tax rate. For employees on higher incomes, the difference between these two rates is substantial.

Illustrative example (general information only, not personal advice)

An employee earning $120,000 per year pays income tax at a marginal rate of 37% (plus Medicare levy). By salary sacrificing $10,000 into super, that $10,000 is taxed at 15% within the fund rather than at their marginal rate — a potential tax saving of around $2,200 on that amount alone in a single year.

The actual benefit depends on individual circumstances, including whether Division 293 tax applies, and should be calculated with professional advice.

Over a working career, the combined effect of tax savings and the compounding growth of additional funds in super can be considerable. The strategy tends to deliver the greatest benefit to those who implement it consistently and review it regularly as their income and circumstances change.

Understanding the concessional contributions cap

All salary sacrifice contributions count toward the concessional (pre-tax) contributions cap. For the 2024-25 financial year this cap is $30,000 per annum. This is a combined cap that includes:

Compulsory employer contributions — currently 11.5% of ordinary time earnings (increasing to 12% from 1 July 2025)
Voluntary salary sacrifice contributions
Any personal contributions for which a tax deduction is claimed

This is where many people make their first mistake: calculating how much they want to salary sacrifice without first accounting for how much of the cap has already been consumed by their employer’s compulsory contributions.

A simple starting calculation

Step 1: Find your annual employer super contribution (your salary x the current SGC rate)
Step 2: Subtract this from the concessional cap ($30,000 for 2024-25)
Step 3: The result is your maximum available salary sacrifice amount for the year

Example: $100,000 salary x 11.5% = $11,500 in employer contributions. Maximum salary sacrifice = $30,000 minus $11,500 = $18,500.

This is a simplified guide only. Individual circumstances vary and the SGC rate changes on 1 July each year. Always confirm your available cap space with your adviser or via your myGov ATO online account.

What happens if you breach the concessional cap?

Exceeding the concessional cap is not catastrophic, but it does eliminate the tax advantage you were trying to create. Excess concessional contributions are included in your assessable income for the year and taxed at your marginal rate, with a 15% tax offset applied to account for the contributions tax already paid within the fund.

In short, breaching the cap generally means the excess contributions end up taxed at your marginal rate — exactly what you were trying to avoid. The ATO will issue an excess concessional contributions determination, and you will have the option to release up to 85% of the excess amount from your super fund to help meet the tax liability.

Understanding and monitoring your cap space throughout the year is therefore essential, particularly if your salary changes mid-year or if you make any personal deductible contributions in the same financial year.

The carry-forward rule: a valuable opportunity many people miss

Since 2019, Australians with a total superannuation balance below $500,000 at 30 June of the previous financial year have been able to carry forward unused concessional cap space from up to five prior financial years.

This is a particularly valuable provision for people who:

took time away from the workforce, for example to raise children or provide care
had variable or lower income in earlier years and contributed less than the cap
were not aware of salary sacrifice earlier in their career and are now looking to catch up
received a significant pay increase and now have the capacity to contribute more

If you have not fully utilised your concessional cap in recent years and your super balance is below $500,000, you may be able to contribute significantly more than the standard annual cap, either through salary sacrifice or personal deductible contributions. Your available carry-forward amount can be found in your myGov account via ATO online services. This is one of the most frequently overlooked opportunities in superannuation advice, particularly for clients in their 40s and 50s who took career breaks earlier in life.

Setting up salary sacrifice: what you need to know

It must be agreed before the salary is earned

Salary sacrifice cannot be applied retrospectively. You cannot salary sacrifice income you have already received. The arrangement must be agreed upon with your employer in writing before the relevant pay period, and most employers require a formal salary sacrifice agreement to be completed.

If your employer does not currently offer salary sacrifice, it is worth asking. Most do, but there is no legal obligation for an employer to offer the arrangement.

Does salary sacrifice affect other entitlements?

This is worth investigating carefully before entering into any arrangement. Under current superannuation legislation, employers are required to calculate compulsory super contributions based on your ordinary time earnings, not your post-sacrifice reduced salary. Your compulsory employer super contributions should therefore not be reduced by salary sacrificing.

However, other entitlements calculated with reference to your salary — such as annual leave loading, long service leave, or certain insurance arrangements — may be affected depending on your employment contract and the specific terms of your agreement. Always check your contract and confirm with your employer before proceeding.

Salary sacrifice vs personal deductible contributions: what is the difference?

For employees whose employers do not offer salary sacrifice, or for self-employed individuals, an alternative is to make personal super contributions and then claim a tax deduction. The tax outcome can be similar, as both approaches utilise the concessional cap and attract the 15% contributions tax within the fund.

The key difference is the mechanics and the timing. To claim a personal tax deduction for a super contribution, you must lodge a valid notice of intent to claim a deduction with your super fund within the required timeframe and receive an acknowledgement before lodging your tax return. Missing this step means the deduction cannot be claimed and the contribution will be treated as non-concessional.

Personal deductible contributions also require more active management than salary sacrifice, which is set up as an ongoing arrangement and contributes automatically each pay cycle.

Division 293 tax: what high-income earners need to know

Individuals whose combined income and concessional contributions exceed $250,000 in a financial year are subject to Division 293 tax, an additional 15% levy on some or all of their concessional contributions, bringing the effective tax rate on those contributions to 30% rather than 15%.

This does not eliminate the benefit of salary sacrifice for high-income earners. A 30% rate is still considerably lower than the top marginal rate of 47%, but it does reduce the margin and should be factored into the calculation before committing to an arrangement.

Division 293 assessments are issued by the ATO after the tax return is lodged and can be paid either personally or from the super fund. If paying from super, this reduces the balance of your account, which is worth factoring into your overall retirement projections.

Who benefits most from salary sacrifice?

While salary sacrifice can benefit many employees, the strategy tends to deliver the greatest advantage for:

employees on marginal tax rates of 37% or 45%, where the gap between the personal tax rate and the 15% contributions rate is largest
those with significant unused carry-forward cap space from prior years
employees in their peak earning years, typically their 40s and 50s, looking to accelerate their super balance before retirement
those looking to reduce assessable income to stay below key thresholds, including the Medicare Levy Surcharge threshold, the private health insurance rebate tiers, or HECS-HELP repayment thresholds
people returning to work after a career break who have unused carry-forward cap space available

For Hunter region employees and business owners assessing whether salary sacrifice makes sense in their situation, the calculation depends on your specific income, employer contributions, super balance, and broader financial goals. Speak with one of our advisers to work through the numbers for your circumstances.

Common mistakes to avoid

Not accounting for employer contributions: the most common error — forgetting to subtract employer SGC contributions when calculating available cap space, resulting in an inadvertent breach
Setting and forgetting: salary sacrifice arrangements should be reviewed whenever your salary changes, as the cap space calculation shifts
Assuming all employers offer it: most do, but it is not legally required — check with your payroll or HR team before making plans that depend on it
Missing the timing on personal deductible contributions: if using personal contributions rather than salary sacrifice, the notice of intent to claim a deduction must be lodged before your tax return
Ignoring Division 293: high-income earners close to the $250,000 threshold should factor in the potential Division 293 liability before finalising their contribution strategy
Not checking leave and insurance entitlements: some employment contracts calculate certain entitlements on the post-sacrifice salary — always verify before entering an arrangement

The best time to set up salary sacrifice was years ago. The second best time is now.

Salary sacrifice is one of those strategies that sounds simple but has important nuances to get right. Getting the contribution level right, understanding how it interacts with your cap space and other income, and reviewing it regularly as your circumstances change are all part of making the strategy work as intended.

Our advisers work with clients across Newcastle, Lake Macquarie, Maitland, and the Hunter region to build superannuation strategies that are properly integrated with their broader financial plans. Get in touch to arrange a conversation.

Frequently asked questions

What is salary sacrifice into superannuation?

Salary sacrifice into superannuation is an arrangement where you agree with your employer to redirect a portion of your pre-tax salary directly into your super fund. The contribution is taxed at the concessional rate of 15% within the fund, rather than at your marginal income tax rate, making it a tax-effective way to build retirement savings. See also: superannuation advice.

What is the concessional contributions cap for 2024-25?

The concessional contributions cap for 2024-25 is $30,000 per annum. This cap covers all pre-tax super contributions, including your employer’s compulsory SGC contributions, any salary sacrifice contributions, and any personal contributions for which you claim a tax deduction. The cap is indexed and may increase in future years. Always check the ATO website or speak with your adviser for the current figure.

Can I salary sacrifice if I am self-employed?

If you are self-employed, salary sacrifice in the traditional sense is not available as it requires an employer arrangement. However, you can achieve a similar outcome by making personal super contributions and claiming a tax deduction, provided you lodge a valid notice of intent to claim a deduction with your super fund before lodging your tax return. Both approaches use the concessional contributions cap.

What is the carry-forward rule for superannuation contributions?

The carry-forward rule allows eligible individuals to use unused concessional cap space from the previous five financial years, provided their total superannuation balance was below $500,000 at 30 June of the prior year. This can allow contributions significantly above the standard annual cap and is particularly valuable for those who took career breaks or had lower incomes in earlier years.

What is Division 293 tax?

Division 293 tax is an additional 15% tax on concessional super contributions for individuals whose combined income and concessional contributions exceed $250,000 in a financial year. It brings the effective tax rate on those contributions to 30%, which is still lower than the top marginal rate of 47% but reduces the net benefit of salary sacrifice for high-income earners.

Does salary sacrifice reduce my employer’s super contributions?

Under current legislation, your employer must calculate compulsory super contributions based on your ordinary time earnings, not your reduced post-sacrifice salary. This means salary sacrifice should not reduce your employer’s SGC contributions. However, you should verify this with your employer and check your employment contract, as arrangements can vary.

How do I know how much cap space I have available?

Your available concessional cap space, including any carry-forward amounts, can be found in your myGov account via ATO online services. You will need to subtract your employer’s year-to-date SGC contributions and any other concessional contributions already made to calculate your remaining available space for the current financial year.

Salary sacrifice super: how to maximise contributions without breaching the cap