Salary Sacrifice vs Personal Deductible Contributions: And the winner is...

Rudd Mantell Accountants • March 14, 2025

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?


  1. Salary sacrifice – Your employer deducts a portion of your pre-tax salary and contributes it to your super fund.
  2. 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.

By Rudd Mantell Accountants March 21, 2025
If you own Bitcoin, or any other crypto currency, you may have been the beneficiary of Donald Trump’s election as President last November – which saw Bitcoin prices jump by almost 50% almost immediately after the election (and certainly in the following weeks). 
By Rudd Mantell Accountants March 7, 2025
Billions of dollars in downsizer super contributions have been made since its introduction in 2018. Downsizer contributions are popular, but three common misconceptions keep them from being more so.
By Rudd Mantell Accountants March 7, 2025
Most people know that if you inherit a person’s home and you sell it within two years of their death, it can be exempt from capital gains tax (CGT).
By Rudd Mantell Accountants February 28, 2025
The Australian Tax Office (ATO) has released new guidance (TD 2024/7) on when financial advice fees can be claimed as a tax deduction. Overall, the ATO has not changed its view but it has given more clarity around the deductibility of upfront and ongoing fees.
By Rudd Mantell Accountants February 28, 2025
Superannuation is often seen as untouchable savings for retirement, but did you know it can also be a lifeline during financial difficulty? While super is designed for retirement, there are rules to allow it to provide financial support in several situations. Let’s explore these rules and how super might offer relief in times of crisis.
By Rudd Mantell Accountants February 28, 2025
Feeding its seemingly insatiable appetite for rental data, the ATO has recently announced it will soon be collecting rental bond details for some 2.2 million individuals.
By Rudd Mantell Accountants February 14, 2025
Superannuation rules are always changing, and 2025 is set to bring some updates that could affect your retirement savings. Whether you’re just starting to build your super or already planning for retirement, keeping up with these changes can help you make informed decisions. Here’s what’s on the horizon.
By Rudd Mantell Accountants February 14, 2025
Selling a property that may have been used for mixed rental and residence purposes has a lot of capital gain tax (CGT) issues – and some of these also involve exercising good judgment as to how to best use the relevant CGT concessions.
By Rudd Mantell Accountants February 14, 2025
With interest rates remaining stubbornly high, and some property investors bailing out altogether, others are taking steps to refinance their debt in order to secure a lower rate and obtain better terms. Before deciding to go down the refinancing route there are broader financial issues to weigh up and you may need to seek separate financial advice that takes into account your personal and financial circumstances. This article only examines the tax consequences of refinancing your investment property loan and some other issues around interest deductibility.
By Rudd Mantell Accountants February 7, 2025
The government has shared more details about its proposed new “payday super” plan, which will start on 1 July 2026.
More Posts
Share by: