Key points:
- Before-tax contributions are known as concessional contributions. These include:
- employer ‘Super Guarantee’ contributions (11.5%)
- extra employer contributions
- salary sacrifice
- personal concessional contributions which you can claim a tax deduction for.
- You can ask your employer to pay part of your pre-tax pay into your super account. This is known as a salary sacrifice or salary packaging.
- This can be a tax-effective strategy and usually suits middle to higher income earners.
- The cap on concessional contributions is $30,000 each year. If you go over this limit you will pay extra tax.
- You may be able to contribute more than $30,000 if you have not contributed the full amount in previous years.
How super works
Before tax contributions
What's included?
- Employer ‘Superannuation Guarantee’ contributions (11.5%)
- Additional employer contributions
- Salary sacrifice contributions
- Personal contributions (those you can claim a tax deduction for)
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How do before-tax deductions work?
When you make a before-tax super contribution, money is deducted from your salary before income tax is calculated. This means you pay less tax on the money, as before-tax contributions are only taxed at 15%
The amount of tax you save will depend on your marginal tax rate. This is the percentage the government calculates your tax on.
Super Guarantee and Employer Contributions
Employer contributions are taxed at a lower rate than regular income. Employer contributions include:
- the Super Guarantee. This is the 11.5% of your salary your employer must contribute to your super, plus
- any additional amount your employer might contribute to super, above the Super Guarantee.
Salary sacrifice
Salary sacrifice means that you give up some of your take home pay. Your employer re-directs that money into super. In this way you can grow your super savings and at the same time, reduce your taxable income.
Your employer deducts money from your before-tax salary each pay.
If you’re earning a high income extra payments to your super may help to reduce your tax. This is because super contributions are taxed at a lower rate than regular income.
However, if your combined salary and super contributions exceed $250,000 the tax benefit is reduced as you pay an extra 15% on before-tax contributions over the $250,000 limit.
Is salary sacrifice right for you?
Salary sacrifice is an important part of planning your finances, so it's worth making sure you’re choosing the best option for you.
If you're thinking about salary sacrificing your super, check with your employer if this is an option.
If your employer doesn’t provide salary sacrifice, you can add to your super with your after-tax income. You may then claim this as a tax deduction.
How to set up salary sacrifice with your employer
Salary sacrificing your super is easy. Your employer needs to agree to salary sacrifice into your super. Once they do, you can fill out our form and provide it to your employer:
- Download and fill out the Make salary sacrifice contributions through your employer form.
- Nominate how much super you would like to contribute. This could be a dollar amount or as a percentage of your before-tax income.
- Give your employer the completed form. They will complete the salary sacrifice process directly with us.
- Your employer will pay your salary sacrifice amount along with their contribution to your Aware Super account.
Case Study: Jessica
Jessica is 34, earns $75,000 per year and has $63,000 in super.
She decides to grow her super through salary sacrifice. Her contributions are:
- $100 per fortnight until age 67
- Jessica retires with $116,000 more in super. This is because she’s made extra contributions through salary sacrifice.
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Tax savings
Jessica’s salary is taxed on the amount remaining after the contribution is deducted.
For example:
Jessica earns $75,000 per year and adds $100 per fortnight into super ($2,600 per year). Her taxable income is reduced to $72,400.
Jessica saves $442 in tax in the first year!
Assumptions:
- Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.5% p.a.
- Based on average Aware female member aged 34 and planning to retire at age 67.
- Based on SG of 11.5% for 2024/25. This will increase to 12% on 1 July 2025 (where it will remain at 12%).
- Investment returns are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% until age 55, reducing from CPI + 4% to CPI + 2.75% between the ages 55-65 (inclusive) and CPI + 2.75% from age 65 onwards.
- CPI is assumed to be 2.5% p.a.
- Salary Sacrifice contributions increased in line with annual salary increase of 3.5% p.a. and assumes concessional contribution caps are indexed in line with AWOTE.
- Investment returns are assumed to be net of tax.
- This example is for illustrative purposes only and is not intended to provide a guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.
Case Study: Jacob
Jacob is 42, earns $111,000 per year and has $126,000 in super.
He decides to grow his super with salary sacrifice. His contributions are:
- $100 per fortnight until age 67
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Jacob retires with $76,000 more in super. This is because he’s made extra contributions through salary sacrifice.
Tax savings
Jacob’s salary is taxed on the amount remaining after the contribution is deducted.
For example: Jacob earns $111,000 per year and adds $100 per fortnight into super ($2,600 per year). Jacob’s taxable income for the year is reduced to $108,400.
Jacob saves $442 in tax in the first year!
Assumptions:
- Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.5% p.a.
- Based on average Aware male member aged 42 and planning to retire at age 67.
- Based on SG of 11.5% for 2024/25. This will increase to 12% on 1 July 2025 (where it will remain at 12%).
- Investment returns are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% until age 55, reducing from CPI + 4% to CPI + 2.75% between the ages 55-65 (inclusive) and CPI + 2.75% from age 65 onwards.
- CPI is assumed to be 2.5% p.a.
- Salary Sacrifice contributions increased in line with annual salary increase of 3.5% p.a. and assumes concessional contribution caps are indexed in line with AWOTE.
- Investment returns are assumed to be net of tax.
- This example is for illustrative purposes only and is not intended to provide a guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.
Case Study: Ping
Ping is 50, earns $85,000 per year and has $119,000 in super.
She decides to grow her super through salary sacrifice. Her contributions are:
- $150 per fortnight until age 67
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Ping retires with $69,000 more in super. This is because she’s made extra contributions through salary sacrifice.
Tax savings
Ping’s salary is taxed on the amount remaining after her contribution is deducted.
For example: When she earns $85,000 per year and adds $150 per fortnight into super ($3,900 per year), her taxable income for the year is reduced to $81,100.
She saves $663 in tax in the first year!
Assumptions:
- Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.5% p.a.
- Based on average Aware female member aged 50 and planning to retire at age 67.
- Based on SG of 11.5% for 2024/25. This will increase to 12% on 1 July 2025 (where it will remain at 12%).
- Investment returns are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% until age 55, reducing from CPI + 4% to CPI + 2.75% between the ages 55-65 (inclusive) and CPI + 2.75% from age 65 onwards.
- CPI is assumed to be 2.5% p.a.
- Salary Sacrifice contributions increased in line with annual salary increase of 3.5% p.a. and assumes concessional contribution caps are indexed in line with AWOTE.
- Investment returns are assumed to be net of tax.
- This example is for illustrative purposes only and is not intended to provide a guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.
Use our retirement calculator to see what a difference you can make to your long-term savings.
Understand how much you can contribute
There are limits on how much you can pay into your super fund each financial year without having to pay extra tax. These limits are called 'contribution caps'.
There are two different types of contributions you can make to your super.
- Concessional contributions are before-tax contributions and are generally taxed at 15%. This includes the super your employer pays for you, and any super you salary sacrifice. You can contribute up to $30,000 each year.
- Non-concessional contributions are contributions you can make from your take-home pay. This is an after-tax contribution, because your employer would have already taken out the tax you need to pay on your income. You can also claim a tax deduction on these contributions. You can contribute up to $120,000 each year.
If you have more than one super fund, all your contributions are added up and count towards your caps. If you go over these caps, you may need to pay extra tax.
Learn more about how much you can contribute to super, so you can make the most of the caps and maybe save on tax.
Things to consider
Before you salary sacrifice to your super you should consider your current financial situation and how much additional money you can afford to contribute to your super. You generally won't be able to access extra contributions until you retire.
Salary sacrifice can be a tax-effective strategy and usually suits middle to higher income earners.
Where to next?
Simple advice at no cost
Take advantage of simple financial advice over the phone, for answers to questions about your Aware Super account.
Attend an event – Making the most of your super
This series aims to help you understand your super and how to make the most of it to reach your retirement goals.
Contribution caps
There are limits, or ‘caps’, on how much you can contribute to your super each year. If you go over the cap, you could end up paying more in tax.