This article provides general information only and does not constitute personal financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider whether it is appropriate for you and seek advice from a licensed financial adviser if necessary.

Choosing between salary sacrifice and after-tax contributions can significantly affect your super balance and take-home pay. Both strategies boost your retirement savings, but they work differently under Australian tax rules. Your marginal tax rate, income level, and whether you have reached contribution caps determine which approach delivers better value.

What You Will Learn

This guide explains how salary sacrifice (concessional contributions) and after-tax contributions (non-concessional contributions) work, compares their tax treatment, outlines current contribution caps, and helps you assess which strategy suits your financial situation.

Step 1: Understand Salary Sacrifice (Concessional Contributions)

Salary sacrifice means you ask your employer to pay part of your pre-tax salary directly into your super fund. This reduces your taxable income because the money never appears on your payslip as ordinary income. According to the ATO, these contributions are taxed at 15 per cent inside your super fund, which is lower than most marginal tax rates.

For example, if you earn $90,000 and salary sacrifice $10,000, your taxable income drops to $80,000. Instead of paying your marginal rate (32.5 per cent plus the Medicare levy) on that $10,000, you pay 15 per cent contributions tax inside super. The difference saves you significant tax.

Employer Superannuation Guarantee contributions (currently 11.5 per cent, rising to 12 per cent from 1 July 2025) also count as concessional contributions and form part of the same cap.

Step 2: Understand After-Tax Contributions (Non-Concessional Contributions)

After-tax contributions come from money you have already paid income tax on. You make these contributions from your take-home pay or savings. Because you have already paid tax at your marginal rate, these contributions are not taxed again when they enter your super fund.

After-tax contributions are useful when you have reached your concessional cap, received a windfall such as an inheritance, or want to boost super without reducing your take-home pay. They also allow you to claim a tax deduction if you submit a notice of intent to claim to your super fund before lodging your tax return, effectively converting them into concessional contributions (subject to the concessional cap).

Step 3: Compare Tax Treatment

The tax difference is the critical factor. Salary sacrifice is taxed at 15 per cent in your super fund. If your marginal tax rate is 32.5 per cent, 37 per cent, or 45 per cent, salary sacrifice delivers immediate tax savings. The higher your income, the greater the benefit.

After-tax contributions provide no upfront tax benefit because you have already paid your marginal rate. However, they do not add to your taxable income and avoid the 15 per cent contributions tax inside super. As covered in foundational texts such as Principles of Finance, tax-advantaged retirement savings strategies form a core part of financial planning.

High-income earners (those with income plus concessional contributions above $250,000) pay an additional 15 per cent Division 293 tax on concessional contributions, bringing the total to 30 per cent. For these individuals, after-tax contributions may become more attractive once concessional caps are exhausted.

Step 4: Consider Contribution Caps

The ATO sets annual caps on how much you can contribute. For the 2025-26 financial year, the concessional contributions cap is $30,000 (verify current caps at ato.gov.au, as these amounts are indexed). This includes your employer Super Guarantee, salary sacrifice, and any personal deductible contributions.

The non-concessional contributions cap is $120,000 per year. You can bring forward up to three years’ worth of non-concessional contributions ($360,000) if you are under 75 and your total super balance is below $1.9 million (threshold as of 2025-26; verify at ato.gov.au).

Exceeding these caps triggers excess contributions tax. Concessional excess is taxed at your marginal rate plus an interest charge. Non-concessional excess incurs a penalty unless you withdraw it.

Read also: Salary Sacrifice Into Super in Australia: How It Works and What You Save on Tax

Step 5: Assess Your Personal Situation

Salary sacrifice suits you if your marginal tax rate is above 15 per cent and you have not reached the $30,000 concessional cap. It is particularly effective for middle- and high-income earners who can afford to reduce take-home pay.

After-tax contributions suit you if you have maxed out your concessional cap, received a lump sum, or earn below the tax-free threshold (where salary sacrifice offers no tax benefit). They also suit those approaching the transfer balance cap who want to add to super without triggering Division 293 tax.

If you are on a lower income, check whether you are eligible for the government co-contribution (up to $500 for those earning below $60,400 in 2025-26). Non-concessional contributions can trigger this bonus, whereas salary sacrifice may reduce your assessable income below the eligibility threshold.

Practical Tips

Check your super fund statement to see how much you have already contributed this financial year. Use the ATO’s online services or myGov to track contributions across multiple funds.

If you salary sacrifice, confirm your employer processes the arrangement correctly and reports contributions to the ATO on time. Delays can push contributions into the next financial year and affect cap calculations.

Consider timing: if you are close to the concessional cap, switching to after-tax contributions for the remainder of the year avoids penalties. If your income fluctuates, adjust salary sacrifice amounts annually to optimise tax savings.

Common Mistakes

Many people forget that employer Super Guarantee contributions count towards the concessional cap. If your employer contributes $11,500 (11.5 per cent of a $100,000 salary), you can only salary sacrifice an additional $18,500 before hitting the $30,000 cap.

Another mistake is assuming after-tax contributions are always worse because they are not tax-deductible. For high earners subject to Division 293 tax, or those who have maxed out concessional caps, after-tax contributions are often the better choice.

Do not rely on outdated cap amounts. Contribution caps are indexed and change over time. Always verify current limits at ato.gov.au before making large contributions.

Frequently Asked Questions

Can I use both strategies in the same year?
Yes. You can salary sacrifice up to the concessional cap and make after-tax contributions up to the non-concessional cap in the same financial year.

What if I change jobs mid-year?
Your contribution caps follow you across employers. Track your total concessional and non-concessional contributions across all funds to avoid exceeding limits.

Can I claim a tax deduction on after-tax contributions?
Yes, if you submit a notice of intent to claim to your super fund before lodging your tax return. This converts the after-tax contribution into a concessional contribution, subject to the $30,000 cap.

Conclusion

Salary sacrifice offers immediate tax savings for those on marginal tax rates above 15 per cent and is the go-to strategy for most middle- and high-income earners. After-tax contributions provide flexibility once you hit concessional caps or receive lump sums. The right choice depends on your income, current contributions, and long-term retirement goals. Review your strategy each year, track your contributions, and verify current caps and thresholds at ato.gov.au or seek advice from a licensed financial adviser.