Salary Sacrifice

Salary sacrifice is an arrangement with your employer to receive part of your remuneration as something other than cash, most commonly extra super contributions. The sacrificed amount is deducted from your gross pay before income tax is calculated, so your taxable income falls and so does your PAYG withholding. Your take-home drops, but by less than the amount you sacrificed, because you never paid marginal tax on those dollars. That gap between the marginal rate you avoided and the 15% contributions tax inside super is the saving, and it is the whole argument for doing it.

Since 1 January 2020, sacrificed amounts cannot be counted by your employer towards their super guarantee obligation. Your 12% SG must be calculated on your pre-sacrifice salary, which closed an old loophole where bosses quietly substituted your own money for theirs. The concessional contributions cap for 2025-26 is $30,000 including the employer SG, so the room left for sacrifice depends on what your employer already chips in. Other sacrificeable items exist, like novated leases and laptops, but they attract fringe benefits tax rules, with electric vehicles under the luxury car tax threshold currently FBT-exempt. Super is the clean version and the one this entry will keep coming back to.

The mechanism is a redirect, not a deduction. You and your employer agree in writing that, say, $300 of each fortnight's gross pay goes to your super fund before tax is applied. Payroll then calculates PAYG withholding on the reduced gross, so on a $95,000 salary sacrificing $7,800 a year, withholding is worked out as if you earned $87,200. Your payslip shows lower taxable earnings, lower tax withheld, and lower net pay, while $300 lands in super where the fund deducts 15% contributions tax and invests the remaining $255.

Meanwhile your employer's super guarantee keeps being calculated on the original $95,000, because the 2020 rule says sacrificed amounts cannot count towards SG. Check the current cap figures at ato.gov.au before setting anything up, because concessional caps move.

The maths of the saving is a simple subtraction. A dollar taken as cash at a 32% combined clip delivers 68 cents spent. The same dollar sacrificed delivers 85 cents invested. The earned spread, 17 cents per dollar at that bracket, repeats every pay cycle until the cap fills. Division 293 adds an extra 15% contributions tax for those above $250,000, which compresses the spread but rarely erases it.

What sacrifice does not do is dodge HECS. Reportable employer super contributions, including sacrificed amounts, are added back when the ATO calculates HELP repayment income. Your taxable income falls, but your repayment income does not, so the HECS line holds steady.

This is the only legal mechanism on a standard payslip that changes what a dollar is worth before it reaches your hands. At a 30% marginal rate plus the 2% Medicare levy, every dollar not sacrificed is a dollar worth 68 cents; sacrificed into super, the same dollar is worth 85 cents inside a tax-advantaged compounding environment you cannot easily raid for a ute. Over a decade at $500 a fortnight, the spread alone is worth roughly $22,000 before a cent of investment return. Nothing else on the payslip offers that kind of asymmetry for filling in one form.

A colleague named Brent (yes, that Brent) refused to sacrifice because he did not trust super, then put the same money in a savings account taxed at his full marginal rate earning a taxable 5%. He was paying 32% on the interest of money he had already been paid 68 cents on the dollar for. His hedge against an untrustworthy system cost him roughly $1,700 a year in arbitrage and delivered him the smugness.

Run your own numbers through the salary sacrifice calculator before deciding, and cross-check the net-pay effect with the take home pay calculator. The highest-leverage version is boring: sacrifice up to the cap, leave it alone for twenty years.