Salary Sacrifice

John earns $75,000 pa and his tax rate is 30%. He wants to put away an extra $5,000 a year towards his retirement, but he’s not sure whether the tax advantages to be gained from investing in super are worth tying his money up. His other option is to invest outside super.

John has heard about salary sacrifice, a strategy where you ask your employer to take extra money out of your pre-tax salary and contribute it to super. As well as boosting your super, this strategy also reduces your taxable income, so you pay less income tax.

John decides to compare how much he could save by salary sacrificing $5,000 into super, with how much he could save by investing the same amount outside super. For the purposes of this example, we’ve assumed that both investments would provide a return of 7.7% pa.

After 20 years John’s savings could be: Inside super $97,186 Outside super $64,039

That’s an extra $33,777 if John salary sacrifices into super.

Here’s how it works:

Outside super Inside super – lump sum at retirement Financial benefit
Salary sacrificed $5,000 $5,000 $0
After-tax $3,300 $4,250 $950
Return (year 1) $254 $327 $73
Tax on returns (year 1) $86 $49 $37
Financial position after year 1 $3,468 $4,528 $1,060
Financial position after year 10 $32,579 $45,564 $12,985
Financial position after year 20 $64,039 $97,816 $33,777


This table is for illustrative purposes only and does not represent actual returns.  A change in one or more variables and assumptions will produce different results.  This is general information only and does not take into account your individual objectives, financial situation or needs.  This table illustrates the position after 20 years of taking $5,000 pa of before-tax salary and either salary sacrificing it into super or taking it as cash salary and investing outside of super. It assumes investment earnings of 7.7% pa, after fees and before tax. Super investment earnings and contributions are taxed at 15%. Non-super investment earnings are taxed at a marginal tax rate of 34%.  All figures are in today’s dollars, adjusted for inflation of 3% pa.

Important Information

Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Lombardini Allan Financial Group Pty Ltd, its related entities, agents and employees for any loss arising from reliance on this document.

The advice contained on this site is general in nature and has been prepared without considering your objectives, financial situation or needs. You should, before acting on any advice, consider its appropriateness to your circumstances (including your objectives, financial situation and needs). You should also consider the relevant PDS before making any decision about any product.

Gavin Bramley is an authorised representative of Lombardini Allan Financial Group Pty Ltd. | ABN 36 642 793 717| AFSL No.  525803