You agree with your employer, usually via a simple salary sacrifice deed or an update in your payroll system, to redirect part of your pre-tax salary into your super fund instead of receiving it as cash. Two things happen at once: your taxable income drops by the sacrificed amount, so you pay less income tax and Medicare Levy, and the sacrificed amount arrives in your super fund taxed at a flat 15% instead of your marginal rate.
Your employer's 12% Super Guarantee is untouched by any of this. Since a 2020 integrity amendment, SG must be calculated on your Ordinary Time Earnings as if the sacrifice arrangement didn't exist, so you can't accidentally shrink your employer contribution by sacrificing more. Salary sacrifice sits ON TOP of SG, both drawing from the same $32,500 concessional cap for 2026-27.
The saving is real, but it's an arbitrage between two tax rates, not free money: it only works in your favour if your marginal tax rate (15% up to $45,000, 30% up to $135,000, 37% up to $190,000, then 45%) sits above the flat 15% super rate. Someone whose whole taxable income falls in the tax-free threshold or the 15% bracket has little to gain and a genuine downside: the money is locked in super until preservation age, generally 60, for a tax saving that's marginal at best.
Watch the cap closely. Because SG and sacrifice share one $32,500 bucket, a higher salary (and therefore a higher 12% SG dollar figure) eats into your sacrifice headroom before you've sacrificed a single dollar. Go over the cap and the excess loses the 15% arbitrage entirely: it's taxed at your marginal rate anyway, plus an extra excess contributions charge, so overshooting is a real cost, not just a paperwork issue.
