Salary sacrifice in the pre-retirement window: how it works, what it saves, and where the limits sit

For working Australians in their fifties and early sixties, salary sacrifice into super is one of the most effective tax-efficient saving tools available before retirement. The mechanism is straightforward: you agree with your employer to receive a lower salary, with the difference paid directly into your super fund as a concessional contribution. Because the contribution never passes through your hands as income, it enters the fund taxed at 15 per cent rather than at your personal marginal rate. The benefit is the gap between those two rates — and in the late career, when marginal rates are typically at their highest and the window to act is closing, that gap matters.

The annual concessional contribution cap for 2026-27 is $32,500 per person, up from $30,000 in 2025-26 (ATO, Contributions caps, ato.gov.au, current as at 24 July 2026). This cap covers all concessional contributions combined: Super Guarantee (SG) from your employer, any salary sacrifice amounts, and any personal deductible contributions you make yourself. The Super Guarantee rate for 2026-27 is 12 per cent. For a salary of $100,000, the employer's SG contribution is $12,000, leaving $20,500 of concessional cap headroom for salary sacrifice or personal deductible contributions. At higher incomes, SG alone can consume a significant share of the cap — a salary of $250,000 at 12 per cent SG produces $30,000 in employer contributions and leaves only $2,500 of room for salary sacrifice before breaching the cap.

The current income tax rates for Australian residents in 2026-27 are: 0% on taxable income up to $18,200; 15% on $18,201 to $45,000; 30% on $45,001 to $135,000; 37% on $135,001 to $190,000; and 45% above $190,000 (ATO, Tax rates — Australian residents, ato.gov.au, current as at 24 July 2026). The 15% rate on the $18,201 to $45,000 band took effect on 1 July 2026, down from 16%, under the legislated personal tax cuts — with a further reduction to 14% scheduled for 1 July 2027.

The tax saving from salary sacrifice depends on the bracket. Adding the 2% Medicare levy, the effective marginal rates are 17%, 32%, 39%, and 47% across the four main bands. Contributions into super are taxed at 15%, so the saving per dollar is the gap between those rates: 2 cents in the 15% band, 17 cents in the 30% band, 24 cents in the 37% band, and 32 cents at the top 45% rate before Division 293. The core principle holds: the higher the marginal rate, the more valuable salary sacrifice becomes, and pre-retirees at peak career earnings are typically in the most advantageous position.

For high earners, Division 293 tax reduces but does not eliminate the benefit. Above a combined income and concessional contribution threshold of $250,000, an additional 15 per cent tax applies to concessional contributions, bringing the total rate to 30 per cent rather than 15 per cent (ATO, Division 293 tax — information for individuals, ato.gov.au, current as at 24 July 2026).

Even at 30 per cent total tax on contributions, the benefit relative to the top marginal rate of 47 per cent (including Medicare levy) is still approximately 17 cents per dollar. The headline saving of 32 cents per dollar simply does not apply once Division 293 bites — but the benefit is still real and worth taking.

One of the highest-leverage provisions in superannuation law is the carry-forward concessional contribution, and many pre-retirees are unaware they can access it. If a member's Total Super Balance was below $500,000 at the prior 30 June, they can use any unused concessional cap from the preceding five financial years — in addition to the current year's cap (ATO, Contributions caps — carry forward unused concessional contributions, ato.gov.au, current as at 24 July 2026). The maximum carry-forward available in 2026-27, for a member who has made no concessional contributions since 2021-22, is $175,000 — comprising $32,500 for the current year plus $30,000 (2025-26), $30,000 (2024-25), $27,500 (2023-24), $27,500 (2022-23), and $27,500 (2021-22) in unused prior-year caps. A member who makes a $175,000 concessional contribution in a single year in a top-bracket year can generate a tax saving of roughly $56,000 compared to receiving that amount as ordinary income taxed at 47 per cent. The provision is most valuable for members who took career breaks, whose income was lower in earlier years, or who simply never maxed their concessional contributions before. The window closes when TSB rises above $500,000, so members currently below that threshold should confirm their carry-forward capacity before the next 30 June snapshot removes it.

From 1 January 2020, a legislative change closed the longstanding loophole that allowed some employers to reduce their compulsory Super Guarantee contributions when an employee salary sacrificed. SG must now be calculated on the pre-sacrifice salary, and salary sacrifice contributions are entirely separate from and additional to the employer's SG obligation. For most employees with payroll systems set up post-2020, this is handled correctly. But anomalies still occur, particularly with bonuses and irregular pay items — worth confirming with your payroll team once when setting up a salary sacrifice arrangement.

Salary sacrifice and personal deductible contributions are two routes to the same destination: a concessional contribution to super, taxed at 15 per cent in the fund, with the tax benefit accruing to the contributor. The difference is administrative. Salary sacrifice routes pre-tax dollars directly to super before they touch your hands, requires an employer arrangement, and is automatic once set up. A personal deductible contribution is made from after-tax money and then a tax deduction is claimed in your personal return, requiring a notice of intent to claim a deduction to be lodged with the fund before the relevant deadline. The tax outcome is identical; the choice comes down to whether your employer will support the arrangement and how much flexibility you need mid-year. For employees whose income is irregular — commissions, bonuses, variable pay — personal deductible contributions are often more practical, allowing the contribution decision to be made after the income event rather than locking in a sacrifice rate at the start of the year.

For working pre-retirees in the 55 to 67 age window, the specific case for maximising salary sacrifice rests on three things happening at once: marginal rates are at their peak, the salary sacrifice mechanism ends when employment ends, and carry-forward capacity (if available) can be deployed at the most tax-efficient moment. The benefit of salary sacrifice to a young worker compounds over decades; for a pre-retiree, the benefit is more immediate — a one-time reduction in personal income tax at a time when that rate is likely its highest. That is a different but equally compelling reason to act before the window closes.

Sources

• Australian Taxation Office (ATO) — Tax rates australian residents
• Australian Taxation Office (ATO) — Contributions caps
• Australian Taxation Office (ATO) — Division 293 tax information for individuals