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Salary sacrifice to super: limits and timing

Salary sacrifice to superannuation is the most tax-efficient way for most Australians to save for retirement. It reduces your assessable income now (saving tax at your marginal rate) and grows in a concessional tax environment (15% on earnings). Understanding the limits and timing rules prevents costly mistakes.

The concessional contribution cap

2025-26 cap: $30,000 per financial year. This cap applies across all concessional contributions:

  • Employer’s mandatory super guarantee contributions (11.5%-12% of ordinary time earnings)
  • Salary sacrifice contributions from your pre-tax salary
  • Personal deductible contributions (claimed on your tax return)
  • Concessional contributions made to multiple funds (combined)

Exceeding the cap triggers excess concessional contribution charges: the excess is taxed at your marginal rate plus an interest charge.

The carry-forward rule

Unused concessional cap amounts from previous years can be carried forward and used in a future year, provided your total super balance at the start of the year is under $500,000.

Example: in 2022-23, you contributed only $15,000 against the $27,500 cap. The unused $12,500 is added to subsequent years’ caps.

By 2025-26, your carry-forward capacity could be $80,000+ if you had low contribution years. This is particularly valuable for:

  • Income spikes (sale of business, capital gains, bonuses)
  • Career breaks (lower contribution years building carry-forward)
  • Self-employed individuals with variable income

The “pre-tax vs post-tax” math

Your employer pays $1 of salary:

  • Pre-tax path: $1 to super, taxed at 15% = $0.85 invested
  • Post-tax path: $1 - $0.39 tax (at 39% marginal incl. Medicare) = $0.61 invested

The super path puts 40% more capital to work. Compounded over 20-30 years, this is a substantial retirement balance difference.

For very high earners above $250k ($45% marginal + Medicare + Division 293):

  • Pre-tax: $1 - $0.15 (contribution tax) - $0.15 (Div 293) = $0.70 invested
  • Post-tax: $1 - $0.47 = $0.53 invested

Even at top marginal rates with Division 293, pre-tax contribution still puts 32% more capital to work.

The non-concessional (after-tax) contribution

Non-concessional contributions are made from after-tax money. No tax when they enter super, and earnings inside super are still taxed at 15% concessionally.

Caps:

  • Annual: $120,000
  • Three-year bring-forward: $360,000 (if under age 75 and total balance permits)

Non-concessional contributions don’t reduce your current tax but do provide long-term access to the concessional earnings environment.

Division 293 - the high-earner penalty

If your income + concessional contributions exceed $250,000, an additional 15% tax applies to your concessional contributions. This effectively doubles the contribution tax from 15% to 30%.

Div 293 still makes pre-tax contributions worthwhile (as shown in the math above) but reduces the margin.

Timing considerations

End of financial year: contributions must be received by your super fund by 30 June to count for that year. Don’t leave it to the last week - processing delays can push contributions into the next year.

Unused caps: plan carry-forward strategically. Use carry-forward in years with:

  • Large capital gains
  • Sale of business
  • Redundancy payments
  • Significant bonuses

Retirement transition: once you reach preservation age and stop working (or “transition to retirement”), different contribution rules apply. Plan carefully around this.

The self-employed / sole trader advantage

Self-employed individuals can make personal deductible contributions up to the full $30,000 concessional cap. This is genuinely pre-tax money.

For self-employed earners without mandatory super guarantee:

  • The full $30k cap is available for personal deductible contributions
  • Claimed as a deduction on the tax return
  • Reduces current-year assessable income at marginal rate

For self-employed at 37% marginal: $30k contribution saves $11,100 in tax, while still putting $25,500 into super (after 15% contribution tax).

The spouse contribution option

You can make a non-concessional contribution on behalf of a low-income spouse:

  • If your spouse earns under $37,000, you receive a tax offset of up to $540 on an $3,000 contribution
  • The contribution counts against your spouse’s non-concessional cap

This is a small but genuine benefit for families with income disparity.

Contribution splitting

You can split up to 85% of your concessional contributions with your spouse. The split contribution counts against your concessional cap but transfers to your spouse’s super balance.

Uses:

  • Balance out super across a couple
  • Access the spouse’s transfer balance cap (important near retirement)
  • Income splitting in retirement (more balance in pension phase of lower-income spouse)

The lifecycle strategy

Under 35: contribute modestly or rely on employer guarantee. Focus on deposit and other wealth building.

35-50: accelerate contributions. This is when carry-forward and higher incomes make super contributions most valuable.

50+: use catch-up contributions heavily. Carry-forward from earlier years becomes accessible. Pre-retirement super build is the most tax-efficient wealth creation.

60-65: transition to retirement. Complex rules apply; specific advice recommended.

Where people go wrong

1. Exceeding caps without knowing: multiple employers each contributing at 11.5% can push you over the $30k cap. Check your contribution caps via myGov.

2. Salary sacrifice timing issues: setting up salary sacrifice mid-year leaves the first portion of the year without sacrifice. Start at the beginning of the financial year where possible.

3. Not using carry-forward: many people with low super balances don’t realise they can carry forward unused caps.

4. Contributing in the wrong year: contributions made in late June may not process until July. Plan for a buffer.

5. Excess non-concessional from unintended sources: gifts, inheritance, employer contributions mislabelled, rollovers - some of these can count against non-concessional caps unexpectedly.

The annual check

Every June, review:

  • Total concessional contributions year-to-date
  • Remaining cap for the year
  • Carry-forward available for next year
  • Non-concessional cap usage
  • Strategic top-up opportunities

Super contribution strategy is often the single biggest tax optimisation available to middle-and-high-income PAYG earners. It is underutilised by many Australians relative to its value.