Salary Sacrifice vs Personal Deductible Contributions
Brad Dickfos • March 17, 2025
Salary Sacrifice vs Personal Deductible Contributions: And the winner is…
Super is a great way to save for retirement. It offers an opportunity to invest in long-term growth assets and enjoy generous tax concessions along the way. For those wanting to make extra contributions and reduce their personal tax bill, there are two options:
- Salary sacrifice, and
- Personal deductible contributions (PDCs)
Both have their benefits, and choosing the right method depends on your cash flow, flexibility needs and personal preference. Let’s break them down.
What are salary sacrifice and personal deductible contributions?
- Salary sacrifice – Your employer deducts a portion of your pre-tax salary and contributes it to your super fund.
- Personal deductible contributions (PDCs) – You make voluntary contributions from after-tax money and later claim a tax deduction when you lodge your tax return.
Benefits of salary sacrifice
- Timing – Salary sacrifice contributions reduce your taxable income immediately, meaning your employer will withhold less tax and you will immediately enjoy the tax saving. PDCs provide a tax deduction when you lodge your tax return meaning you do not get the tax benefit until later.
- Discipline – Salary sacrifice is automatic and helps maintain savings discipline.
- Simplicity – salary sacrifice can be much simpler and less administrative. PDCs require you to submit paperwork to the super fund known as a ‘notice of intent’ form. This paperwork must be submitted within strict timeframes. With salary sacrifice you do not need to worry about such paperwork.
When salary sacrifice is a winner
Salary sacrifice is a winner for employees who:
- Prefer a “set-and-forget” approach to growing their super.
- Have regular income and want a simple way to contribute.
- Want to ensure their contributions are made gradually over the year to benefit from ‘dollar cost averaging’. This reduces the risk of ‘going all in’ at the peak of the market.
Benefits of personal deductible super contributions
- Availability – Salary sacrifice is only available to employees. If you are not employed, you can’t salary sacrifice. Instead, you might able to make a PDC to super.
- Flexibility – PDCs offer greater flexibility, allowing you to contribute lump sums at any time during the financial year.
- Reversibility – After making the contribution and submitting paperwork to claim the deduction you might change your mind. Perhaps you have insufficient income to justify claiming a deduction and would prefer that contribution not be subject to the 15% ‘contributions tax’. It may be possible to ‘reverse’ the contributions tax and not claim the deduction, but unless you have retired or met a condition of release the contribution will remain ‘stuck’ in super.
When personal deductible contributions are a winner
PDCs are a winner for people who:
- Want greater control over when and how much they contribute.
- Have variable income or expect a large one-off payment (e.g., bonus, inheritance, asset sale).
- Are self-employed or receive income from multiple sources.
- Want to contribute additional amounts closer to the end of the financial year to maximise their tax deduction.
Enjoy the best of both worlds: Combining salary sacrifice and PDCs
Many people use both strategies to maximise their super contributions efficiently. For example:
- Setting up salary sacrifice to contribute steadily throughout the year.
- Making a PDC at the end of the financial year if additional concessional contribution (CC) cap space is available.
- Adjusting contributions based on unexpected income or bonuses.
Conclusion
Salary sacrifice and PDCs each have their advantages, and the right choice depends on your employment, cash flow and personal preference. By speaking to your adviser as to how each method works, you can make informed decisions to optimise your retirement savings while reducing your tax bill.
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This article focuses on self-employed clients. If you’re a salary earner or retiree, you might find one of our other blogs more helpful.
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Most of us keep a close eye on our bank accounts. But superannuation can be easier to lose track of, especially if you’ve changed jobs, moved house, changed your name, or simply set up a new fund and assumed everything followed you. That’s why the Australian Taxation Office (ATO) has issued a timely reminder. There is now $18.9 billion in lost and unclaimed super sitting across Australia. That’s up $1.1 billion since 2024 and spread across just under 7.3 million accounts. In other words, a lot of Australians have retirement savings that aren’t currently working for them and some of it could be yours. What “lost” or “unclaimed” super actually means Super doesn’t vanish, but it can go missing from your radar. It typically happens when an account becomes inactive and your super fund can’t contact you, or when you end up with multiple funds over the years. The ATO also holds certain amounts of super on behalf of individuals, for example, small inactive balances that have been transferred to the ATO, or other unclaimed amounts. The average amount of lost or unclaimed super is around $2,590 per person. That might not sound life-changing today, but over time it can grow into tens of thousands by retirement. A special note if you have an SMSF If you have an SMSF, this ATO update is particularly worth paying attention to. When you established your SMSF, you might have transferred most of your super across, but kept some behind, for example, to retain insurance cover through another fund. That means there could still be older super accounts from past jobs or retail/industry funds sitting in your name. The ATO is urging SMSF members to do a check, because a share of the $18.9 billion in lost and unclaimed super might be yours and could be rolled into your SMSF. One important practical tip is that if you locate lost super and want to move it into your SMSF, but your SMSF doesn’t show up as a transfer option in ATO online services, it’s often due to the fund’s compliance status. Take a moment to confirm your SMSF is listed as “complying” or “registered” on Super Fund Lookup. How to check for lost super (it only takes minutes) The ATO has made this super simple (pun intended!). You can: 1. Log in to myGov and go to ATO online services 2. Navigate to the Super section to view: Super held by the ATO Any lost or unclaimed accounts 3. Request a transfer to an eligible super account. Even if you don’t find anything, you’ll at least know everything is where it should be. Simple habits that help you stay on top of super Finding lost super is great but preventing it from happening at all is even better. A few easy habits can make a big difference: Keep your details up to date with your fund and the ATO so you stay contactable. Check whether you’ve got more than one account. Multiple accounts can mean multiple fees and duplicated insurance Consider consolidating if it suits your situation. Fewer accounts can mean lower fees and easier management but just be sure to check any insurance you might lose before rolling over Read your annual statement. It’s a quick way to confirm contributions, fees, returns, investment mix and beneficiaries. Why acting now matters Since 2022, the ATO has already reunited Australians with about $5.5 billion in previously unclaimed super. But there’s still nearly $19 billion waiting to be found. A few minutes today could translate into a healthier retirement balance later. It’s easy to put super in the “deal with it later” basket, but it’s still your hard-earned money. If you want a hand finding lost super, combining accounts, or moving money into your SMSF, reach out to us. We can guide you through the steps and make sure you’re able to claim any lost super without any hassles.
