⚠️ IMPORTANT DISCLAIMER: This guide provides general educational information only and does not constitute financial advice. Contribution strategies depend on individual circumstances including income, age, and financial goals. Always consult a licensed financial adviser before making contribution decisions. We are not licensed to provide financial product advice under the Corporations Act 2001.
The two main ways to contribute to super are salary sacrifice (before-tax) and after-tax contributions. Each has different tax treatment, caps, and implications. Understanding these differences can help you make informed decisions with your adviser.
This educational guide explains both contribution types, compares tax treatment, and describes factors people typically consider. All decisions should be made with professional financial advice.
What is Salary Sacrifice?
Salary sacrifice (also called salary packaging) means you arrange with your employer to redirect part of your pre-tax salary directly into your super fund.
How It Works:
- You arrange with your employer to sacrifice $X from your salary
- This amount goes to super before income tax is calculated
- Your taxable income reduces by $X
- Super fund receives the contribution and taxes it at 15%
- You save the difference between your marginal tax rate and 15%
💰 Example:
Salary: $100,000
Salary sacrifice: $10,000
Without salary sacrifice:
• Taxable income: $100,000
• Income tax (32.5% rate): $32,500
• Take-home: $67,500
• Super from employer SG: $11,500
With salary sacrifice:
• Taxable income: $90,000
• Income tax (32.5% rate): $29,250
• Take-home: $60,750
• Super total: $11,500 + $10,000 = $21,500
• Contribution tax in super (15%): $1,500
Tax savings: $3,250 - $1,500 = $1,750 per year!
Salary: $100,000
Salary sacrifice: $10,000
Without salary sacrifice:
• Taxable income: $100,000
• Income tax (32.5% rate): $32,500
• Take-home: $67,500
• Super from employer SG: $11,500
With salary sacrifice:
• Taxable income: $90,000
• Income tax (32.5% rate): $29,250
• Take-home: $60,750
• Super total: $11,500 + $10,000 = $21,500
• Contribution tax in super (15%): $1,500
Tax savings: $3,250 - $1,500 = $1,750 per year!
What are After-Tax Contributions?
After-tax contributions (non-concessional) are made from your take-home pay after income tax has already been deducted.
How It Works:
- You receive your salary with income tax already deducted
- You voluntarily transfer money from your bank account to super
- No additional tax is paid in super (already taxed at your marginal rate)
- Contribution counts toward non-concessional cap ($120,000/year)
Contribution Caps 2025-26
| Contribution Type | Annual Cap | Who It Counts For |
|---|---|---|
| Concessional (Before-Tax) Includes: Employer SG, salary sacrifice, personal deductible |
$30,000/year | Everyone under 75 |
| Non-Concessional (After-Tax) Personal contributions, spouse contributions |
$120,000/year | Everyone under 75 |
| Bring-Forward Rule Non-concessional over 3 years |
$360,000 | Under 75, Total Super Balance under $1.9M |
⚠️ Exceeding Caps: Going over contribution caps triggers excess contributions tax (up to 47% for concessional, 47% for non-concessional) plus penalties. Always track your total contributions carefully!
Tax Comparison: Which Saves More?
Tax Treatment Breakdown
| Strategy | Tax on Contribution | Effective Tax Rate | Best For |
|---|---|---|---|
| Salary Sacrifice | 15% in super fund | 15% (vs. 32.5%-45% marginal rate) | High income earners (over $45,000) |
| After-Tax | 0% (already taxed) | Your marginal rate (19%-45%) | Low income earners, or when concessional cap reached |
Tax Savings by Income Level
| Taxable Income | Marginal Tax Rate | Super Tax Rate | Tax Saving per $1,000 |
|---|---|---|---|
| $18,201 - $45,000 | 19% | 15% | $40 |
| $45,001 - $120,000 | 32.5% | 15% | $175 |
| $120,001 - $180,000 | 37% | 15% | $220 |
| Over $180,000 | 45% | 15% | $300 |
💡 Key Insight: If you earn over $45,000, salary sacrifice saves you at least $175 in tax for every $1,000 contributed. Someone earning $120,000 who salary sacrifices $10,000 saves $1,750 in tax each year!
Pros and Cons Comparison
✅ Salary Sacrifice
Pros:
- Significant tax savings (17.5%-30%)
- Reduces taxable income
- Automatic (set and forget)
- May reduce HECS-HELP repayments
- May reduce Medicare Levy Surcharge
Cons:
- Reduces take-home pay
- Money locked until preservation age
- Counts toward $30k concessional cap
- Requires employer cooperation
💰 After-Tax Contributions
Pros:
- No additional tax in super (0%)
- Flexibility (contribute when you can)
- Higher cap ($120k vs $30k)
- Doesn't require employer involvement
- Good for lump sums (bonus, inheritance)
Cons:
- No upfront tax benefit
- Already taxed at your marginal rate
- Requires discipline to contribute
- Need cash flow to afford it
Factors to Consider When Choosing (Educational Only)
⚠️ NOT ADVICE: The following describes general factors some people consider. This is not a recommendation for your specific situation. Only a licensed financial adviser who knows your circumstances can provide appropriate advice.
Factors Associated with Salary Sacrifice:
- Higher income levels may see larger tax differentials
- Concessional cap limits apply ($30k including employer SG)
- Reduces take-home pay (cash flow consideration)
- Automated through payroll systems
- May affect HECS-HELP repayments and Medicare Levy Surcharge
Factors Associated with After-Tax Contributions:
- Available when concessional cap is already utilized
- Useful for lump sum amounts (inheritance, bonuses, asset sales)
- Lower income earners may find marginal benefits reduced
- Provides flexibility in timing and amounts
- Total Super Balance affects non-concessional cap availability
Combined Approach Considerations:
- Some people use both strategies to maximize total contributions
- Requires sufficient cash flow to fund both methods
- Complex cap tracking required (professional advice recommended)
Important: Which strategy (if any) is appropriate for you depends on your complete financial situation. This decision should be made with a licensed financial adviser.
📊 Example Scenario (Illustrative Only - Not Advice):
Hypothetical person earning $150,000/year might explore:
1. Salary sacrificing $18,500 (combined with $11,500 SG = $30k cap)
Potential tax differential: ~$4,070/year
2. After-tax contributing $50,000 (within $120k cap if eligible)
No additional tax in super
This is an example only. Whether this approach is suitable requires professional advice based on complete financial circumstances, goals, and cash flow.
Hypothetical person earning $150,000/year might explore:
1. Salary sacrificing $18,500 (combined with $11,500 SG = $30k cap)
Potential tax differential: ~$4,070/year
2. After-tax contributing $50,000 (within $120k cap if eligible)
No additional tax in super
This is an example only. Whether this approach is suitable requires professional advice based on complete financial circumstances, goals, and cash flow.
Division 293 Tax Consideration
If your income plus concessional contributions exceed $250,000, you pay an additional 15% tax on concessional contributions (total 30% instead of 15%).
This means:
- High income earners (>$250k) still save tax, but less (15% instead of 30%)
- May make after-tax contributions more attractive at very high incomes
- Consider splitting contributions between before-tax and after-tax
Contribution Strategies by Age
Ages 30-45: Aggressive Accumulation
Recommended: Maximize salary sacrifice
- Long time until retirement = maximum compounding benefit
- Tax savings reinvested for 20-35 years
- Aim for $20k-30k concessional contributions annually
Ages 45-55: Catch-Up Phase
Recommended: Combine salary sacrifice + after-tax
- Max out concessional cap ($30k)
- Add after-tax if cash flow allows ($50k-120k)
- Use carry-forward unused concessional if available
Ages 55-67: Pre-Retirement Boost
Recommended: After-tax contributions + downsizer
- Continue salary sacrifice up to cap
- Consider downsizer contribution if selling home (up to $300k each, one-time)
- Large after-tax lump sums if Total Super Balance permits
Ages 67-75: Final Contributions
Recommended: Work test required, strategic timing
- Must meet work test (40 hours in 30 consecutive days)
- Or use work test exemption (one year after last work test)
- Downsizer contributions still available (no work test)
- Focus on staying under Transfer Balance Cap ($2.0M)
Common Mistakes to Avoid
❌ Mistake #1: Exceeding Contribution Caps
Going over the $30k concessional cap triggers excess contributions tax at your marginal rate plus interest. Always track SG + salary sacrifice + personal deductible carefully.
Going over the $30k concessional cap triggers excess contributions tax at your marginal rate plus interest. Always track SG + salary sacrifice + personal deductible carefully.
❌ Mistake #2: Not Claiming Tax Deduction
Personal after-tax contributions CAN be claimed as tax deductions (making them concessional). You must lodge a "Notice of Intent to Claim" before the earlier of lodging your tax return or June 30.
Personal after-tax contributions CAN be claimed as tax deductions (making them concessional). You must lodge a "Notice of Intent to Claim" before the earlier of lodging your tax return or June 30.
❌ Mistake #3: Ignoring Total Super Balance
Once your Total Super Balance exceeds $1.9M, your non-concessional cap becomes $0. Plan contributions carefully as you approach this threshold.
Once your Total Super Balance exceeds $1.9M, your non-concessional cap becomes $0. Plan contributions carefully as you approach this threshold.
General Scenarios (For Educational Purposes Only)
⚠️ NOT RECOMMENDATIONS: The following table shows general patterns observed in contribution strategies. This is NOT advice for your situation. Every person's circumstances are different. Seek professional financial advice before making any decisions.
| General Scenario | Commonly Observed Approach | General Consideration |
|---|---|---|
| Income $50k-150k, age 30-55 | May consider salary sacrifice | Potential tax differential between marginal rate and 15% |
| Income under $45k | May explore after-tax with co-contribution | Government co-contribution may be available (up to $500) |
| Income over $250k | May use mixed approach | Division 293 tax affects concessional contributions |
| Received lump sum | After-tax often utilized | Non-concessional cap allows larger one-time amounts |
| Already contributing $30k/year | After-tax becomes necessary | Concessional cap limit reached |
| Total Super Balance > $1.9M | Concessional contributions only | Non-concessional cap becomes $0 by legislation |
Disclaimer: These are general observations only, not recommendations. Your appropriate strategy requires professional financial advice based on your complete circumstances.
Real-World Example: The Mitchell Family
Sarah (42): Earns $95,000/year
- Current super: $280,000
- Employer SG: $10,925/year
- Strategy: Salary sacrifice $15,000/year
- Tax saving: $2,625/year (17.5% marginal rate savings)
- Total concessional: $25,925 (within $30k cap)
David (45): Earns $140,000/year
- Current super: $420,000
- Employer SG: $16,100/year
- Strategy:
- Salary sacrifice $13,900 (max out $30k concessional cap)
- After-tax contribute $30,000 (windfall from bonus)
- Tax saving: $3,058/year on salary sacrifice
- Total into super: $60,000/year
Combined household: $85,925 added to super, $5,683 tax saved, well-positioned for retirement at 60.
Step-by-Step: Setting Up Salary Sacrifice
- Check eligibility: Confirm your employer offers salary sacrifice (most do)
- Calculate optimal amount: Use our calculator to determine maximum benefit
- Request salary sacrifice agreement: Contact HR/payroll department
- Complete paperwork: Sign salary sacrifice agreement with start date
- Verify contributions: Check first payslip shows reduced gross income
- Confirm super fund receipt: Log into super fund after 1-2 months
- Track annual total: Monitor you don't exceed $30k cap (SG + sacrifice)
Step-by-Step: Making After-Tax Contributions
- Find super fund details: Get BSB, account number, and member number
- Transfer from your bank: Use "Pay Anyone" or BPAY
- Include reference: Your member number and "Non-concessional contribution"
- Keep records: Save transaction confirmation
- Lodge tax return: If claiming as deduction, lodge "Notice of Intent"
- Track annual cap: Monitor $120k non-concessional limit
🧮 Calculate Your Optimal Contribution Strategy
Our Accumulation Calculator helps you model salary sacrifice vs after-tax contributions and shows you which strategy maximizes your retirement balance.
Try Our Calculator →Summary: Key Points for Discussion with Your Adviser
Salary Sacrifice Considerations:
- Generally involves higher income levels for meaningful tax differentials
- Provides automated regular contributions through payroll
- Subject to $30k concessional cap (including employer SG)
- Reduces take-home pay (cash flow impact to consider)
After-Tax Contribution Considerations:
- Available when concessional contributions are already at cap
- Useful for lump sum amounts from various sources
- Provides flexibility in timing and contribution amounts
- Tax benefit varies by income level
Discussion Point: Some Australians use a combination of both strategies depending on their circumstances. Your financial adviser can help determine what's appropriate for your situation based on your income, age, super balance, and financial goals.