Reduce your Income Tax with Salery Sacrifice
It was once said that there are three certainties in life. Birth, Death and taxes. Two of these are out of our control but taxes can be manipulated to a degree. Though we may never get out of paying them altogether, here we will look at reducing them.
Salary sacrifice is essentially a “future-you” gift that also happens to annoy the taxman. By asking your employer to pay a portion of your pre-tax salary directly into your super fund instead of your bank account, you effectively lower your taxable income while padding your retirement nest egg. From leaving school, adding as little as $10 a week can add up to a huge amount come retirement. What makes even more sense is that as times goes by and depts such as mortgage payments reduce we should contribute more to our superannuation. Paying more per week decreases the amount of tax we pay through Concessional Contributions.
The Thresholds (Contribution Caps)
The most important thing to know is that salary sacrifice falls under Concessional Contributions. This cap includes both the 12% your employer is legally required to pay and any extra you choose to sacrifice.Because the Super Guarantee rate is rising to 12% from 1 July 2025, your “gap” for salary sacrifice will naturally shrink slightly as your employer contributes more of the cap for you.
| Financial Year | Concessional (Pre-Tax) Cap | Employer SG Rate |
| 2024–2025 | $30,000 | 11.5% |
| 2025–2026 (Current/Upcoming) | $30,000 | 12% |
If you haven’t used your full cap in previous years and your total super balance is under $500,000, you can “carry forward” unused cap amounts from the last five years. This can allow you to contribute significantly more than $30,000 in a single year to catch up.
The Income Tax Benefits
Think of salary sacrifice like a “tax discount” for your future. Instead of the government taking a big bite out of your pay cheque, you send that money to your super fund where the tax bite is much smaller.
When you get paid normally, the government looks at your total income and takes a percentage based on your “bracket.” For most full-time workers, that’s at least 32% (30% tax + 2% Medicare levy). However, if you “sacrifice” some of that salary into super, the government ignores your normal tax rates. Instead, they charge a flat 15%. The Result: You keep the difference. If you are in the 32% bracket, you’ve just given yourself a 17% “bonus” on every dollar you contributed.
So What’s the Catch?
The only real downside is access. While you save a heap on tax today, that money is “locked in the vault” until you retire (usually age 67). It’s great for your 67-year-old self, but not helpful if you need to buy a car next week! So this subject should be taken in balance. There’s no point in sacrificing your quality of life and struggling today but living like a kings and queens later in life.