Salary Sacrifice vs Personal Contributions: Which Saves More Tax?
Both salary sacrifice and personal deductible contributions can reduce your tax while boosting your super, and they achieve a very similar outcome through slightly different paths. Here is how they compare.
How Salary Sacrifice Works
Salary sacrifice is an arrangement you make with your employer before you earn the income, directing part of your pre tax salary into super instead of taking it as cash. Because it happens before tax, that portion of your income is taxed at the concessional 15% contributions tax rather than your marginal income tax rate, which for many people is considerably higher. See the real numbers for your own salary using our Salary Sacrifice Calculator.
How Personal Deductible Contributions Work
A personal deductible contribution is money you contribute to your own super, generally from your bank account, which you then claim as a tax deduction when you lodge your tax return. You need to submit a notice of intent to claim a deduction ↗ to your fund before you lodge your return, and the fund must acknowledge it before the deduction is valid.
The Key Difference
Salary sacrifice reduces your take home pay throughout the year and requires employer cooperation to set up. Personal deductible contributions let you contribute a lump sum, from savings, a bonus, or any other source, and claim the deduction afterwards, without needing your employer involved at all. Financially, once both are within the concessional cap, the tax outcome is broadly similar, since both are taxed at 15% going into super rather than your marginal rate.
Which One Suits You
Salary sacrifice tends to suit people who want a simple, automatic, ongoing arrangement, since it happens every pay cycle without further action. Personal deductible contributions suit people with irregular income, a bonus or windfall they want to direct into super, or those who prefer to decide contribution amounts later in the financial year based on their full picture.
One Cap, Not Two
It is worth remembering that both count toward the same concessional contributions cap. If you are doing both, use our Contribution Cap Checker to make sure your employer Super Guarantee, salary sacrifice, and personal deductible contributions combined do not exceed the annual limit.
See how much tax you could save by salary sacrificing, based on your own salary.
Try the Salary Sacrifice Calculator →This information is general in nature and not financial or tax advice. See our full Disclaimer for details.