Salary Sacrifice Strategies for High Earners How to maximise super contributions and reduce your tax bill

For professionals earning above-average incomes, the marginal tax rate can feel punishing. At the 37% or 45% brackets, nearly half of every additional dollar earned goes to the ATO. Yet one of the most powerful and accessible wealth-building tools available to Australian taxpayers sits right inside their employment arrangement: salary sacrifice into superannuation.

Salary sacrifice is not a new concept, but it remains underutilised by many high-income earners who could benefit significantly from a well-structured arrangement. When executed correctly, it reduces your taxable income, accelerates your retirement savings, and takes advantage of the concessional 15% tax rate within superannuation. When done poorly, or without proper planning, it can trigger unexpected tax liabilities and compliance issues.

This article walks through the mechanics of salary sacrifice super strategies, the current contribution caps, the Division 293 tax that applies to very high earners, and the practical steps you should consider before putting an arrangement in place.

What Is Salary Sacrifice Into Super?

Salary sacrifice is a formal arrangement between you and your employer where you agree to forgo a portion of your pre-tax salary in exchange for additional employer contributions to your superannuation fund. These contributions are classified as concessional contributions, meaning they are taxed at 15% within the fund rather than at your marginal tax rate.

It is important to understand that salary sacrifice contributions are made from your pre-tax income. This distinguishes them from personal after-tax contributions (non-concessional contributions), which come from income that has already been taxed at your marginal rate.

The arrangement must be agreed to in advance. You cannot retrospectively salary sacrifice income that has already been earned. Most employers facilitate this through payroll, and the process is straightforward once the paperwork is in place.

Concessional Contribution Caps for 2025-26

For the 2025-26 financial year, the concessional contribution cap is $30,000 per person. This cap applies to the total of all concessional contributions received by your super fund during the year, including:

• Employer Superannuation Guarantee (SG) contributions
• Salary sacrifice contributions
• Personal deductible contributions (claimed via a notice of intent to deduct)

This means if your employer pays $15,525 in SG contributions (11.5% of a $135,000 salary), you have $14,475 of headroom remaining within the $30,000 cap that can be directed through salary sacrifice.

Carry-Forward (Catch-Up) Contributions

Since 1 July 2018, individuals with a total super balance below $500,000 at the previous 30 June can access unused concessional cap amounts from the prior five financial years. This carry-forward provision is particularly valuable for people who have had periods of lower income, career breaks, or who simply have not maximised their contributions in previous years.

For example, if you only contributed $20,000 in concessional contributions in 2023-24, the unused $2,500 (the cap was $27,500 that year) rolls forward and can be used in a later year. Over five years, this can accumulate into a substantial amount of additional contribution capacity.

Carry-forward contributions are one of the most underutilised tools in superannuation planning. For high earners who have recently increased their income, or who have returned to the workforce after a break, the ability to catch up on missed years can deliver tens of thousands of dollars in additional tax-effective savings.

The Tax Benefit: Why Salary Sacrifice Works for High Earners

The fundamental appeal of salary sacrifice is the gap between your marginal tax rate and the 15% contributions tax within superannuation. The wider the gap, the greater the benefit.

Consider the following comparison for the 2025-26 financial year:

• Taxable income $120,001 - $180,000: Marginal rate of 37% (plus 2% Medicare levy). Salary sacrificing into super saves you 24 cents in tax on every dollar contributed (39% minus 15%).
• Taxable income above $180,000: Marginal rate of 45% (plus 2% Medicare levy). Salary sacrificing saves you 32 cents per dollar contributed (47% minus 15%).

On $14,475 of salary sacrifice contributions, a person in the top bracket would save approximately $4,632 in tax compared to receiving that amount as salary. Over a decade, with the benefit of compound investment returns within super, the wealth impact becomes substantial.

Division 293 Tax: The Extra 15% for High Earners

While salary sacrifice is effective for most high-income earners, those with income and concessional super contributions totalling more than $250,000 face an additional 15% tax on the portion of contributions that pushes them above the threshold. This is known as Division 293 tax, and it effectively doubles the tax on those contributions from 15% to 30%.

How Division 293 Is Calculated

The ATO calculates Division 293 by adding your taxable income (plus certain other items such as reportable fringe benefits, net investment losses, and net rental losses) to your low-tax contributed amount (essentially your concessional contributions). If this combined figure exceeds $250,000, the lesser of the excess or the concessional contributions is subject to the additional 15% tax.

For example, if your taxable income is $240,000 and your concessional contributions are $30,000, the combined total is $270,000. The excess over $250,000 is $20,000, so $20,000 of your contributions attracts the additional 15% Division 293 tax. You would pay an extra $3,000 in tax on those contributions.

Does Division 293 Make Salary Sacrifice Pointless?

No. Even with Division 293, the effective tax rate on concessional contributions is 30%, which is still lower than the 47% marginal rate (including Medicare levy) that applies to income above $180,000. You are still saving 17 cents in tax on every dollar contributed. The strategy remains beneficial; it is simply less powerful than it is for earners below the $250,000 threshold.

The ATO issues a Division 293 assessment after you lodge your tax return. You can choose to pay the tax from your personal funds or have it released from your super fund. Most people elect to pay from super, which reduces the administrative burden but also slightly reduces the super balance.

Setting Up a Salary Sacrifice Arrangement

Step 1: Check Your Employer's Policy

Not all employers offer salary sacrifice, although most medium and large employers do. Some employers have specific policies about which components of remuneration can be sacrificed and may have administrative requirements or deadlines for electing salary sacrifice.

Step 2: Calculate Your Available Cap Space

Before committing to an amount, determine how much of the $30,000 concessional cap is already being consumed by your employer's SG contributions. If you have access to carry-forward amounts, check your ATO online account via myGov, which shows your unused concessional cap amounts from previous years.

Step 3: Ensure the Arrangement Is Prospective

The arrangement must apply to future salary, not income already earned. This means you should set up the arrangement before the pay period to which it applies. Backdating is not permitted and can result in the ATO treating the contributions as employee contributions rather than employer contributions, which changes the tax treatment.

Step 4: Monitor Throughout the Year

Super contributions can be reported with a lag, and employer contribution cycles do not always align neatly with financial years. Contributions that arrive in your fund after 30 June are counted in the following financial year. If you are close to the cap, keep a close watch on your fund's transaction records in May and June.

Strategies to Maximise the Benefit

Combine Salary Sacrifice with Personal Deductible Contributions

If your employer's salary sacrifice arrangement is inflexible, or if you earn income from multiple sources, you can make personal contributions to super and claim a tax deduction by lodging a valid notice of intent to deduct with your fund. These personal deductible contributions also count towards the $30,000 concessional cap but give you more control over the timing and amount.

Coordinate with Your Spouse

If your spouse earns a lower income, consider whether a contribution-splitting strategy might work alongside your salary sacrifice arrangement. You can split up to 85% of your concessional contributions from the previous financial year to your spouse's super account, helping to equalise balances and potentially reducing the overall tax burden in retirement.

Use Salary Sacrifice to Stay Below Thresholds

Because salary sacrifice reduces your assessable income, it can be used strategically to remain below certain tax thresholds. For example, reducing your taxable income below $180,000 drops your marginal rate from 45% to 37%. Reducing it below $250,000 (combined with super contributions) avoids Division 293 tax entirely.

Leverage Carry-Forward Provisions

If you are new to salary sacrifice or have had years of undercontribution, check whether you have accumulated unused cap space. A one-off large salary sacrifice combined with carry-forward amounts can deliver a significant tax saving in a single year, which is particularly useful if you receive a large bonus or have a high-income year.

Common Pitfalls and Risks

Breaching the Cap

As mentioned above, exceeding the $30,000 concessional cap results in the excess being taxed at your marginal rate. This is the single most common error in salary sacrifice arrangements and typically occurs when people forget to account for SG contributions, or when employer contributions are processed at unexpected times.

Reduced Take-Home Pay

Salary sacrifice reduces your cash income. Before committing, ensure your remaining take-home pay is sufficient to meet your living expenses, mortgage repayments, and other obligations. Locking too much money inside super can create cash-flow problems, particularly if you have short- to medium-term financial goals such as paying down a home loan or funding education expenses.

Preservation Rules

Money contributed to super is preserved until you meet a condition of release, typically reaching your preservation age (between 57 and 60, depending on your date of birth) and retiring. There are very limited circumstances under which you can access super early. Salary sacrifice is a long-term commitment, and the funds are effectively locked away.

Impact on Insurance and Leave Entitlements

Some employment arrangements calculate benefits such as annual leave loading, long service leave payouts, and employer-funded insurance premiums based on your base salary. If salary sacrifice reduces your base salary on paper, it could reduce these entitlements. Check with your employer and review your employment contract before proceeding.

Not Reviewing the Arrangement Annually

Your financial circumstances, income level, and the contribution caps can change from year to year. An arrangement that made sense last year may need adjustment. Review your salary sacrifice amount at the start of each financial year to ensure it remains optimal.

Is Salary Sacrifice Right for You?

Salary sacrifice into superannuation is most effective for individuals who are in the 37% or 45% marginal tax brackets, have stable employment, and do not need the additional cash flow in the short term. It is a disciplined, tax-efficient way to build retirement wealth that compounds over decades.

However, it is not the only tool available. Depending on your circumstances, investment strategies outside of superannuation may complement your salary sacrifice arrangement, particularly if you have already maximised your concessional cap. Similarly, understanding how much super you actually need to retire comfortably is essential for setting a meaningful contribution target rather than simply maximising for tax purposes alone.

The best salary sacrifice strategy is one that fits within a comprehensive financial plan, balancing tax efficiency today with long-term wealth accumulation and lifestyle goals. If you are unsure about the right approach, professional advice tailored to your specific situation is well worth the investment.