Salary sacrifice to super, or pay off the mortgage?
It's one of the most common money questions in Australia — and the honest answer is "it depends." Here's exactly what it depends on, so you can decide for yourself.
You've got some spare room in the budget — a pay rise, a bonus, or simply a bit left over each month. Three doors open: send it to super before tax, throw it at the home loan, or keep it as take-home. Each is taxed and treated differently, and the gap over time can be substantial.
Why super is tax-efficient
Money you salary sacrifice into super is taxed at a flat 15% going in, instead of your marginal rate — which for many earners is 30% or more once the Medicare levy is counted. That difference is an immediate, guaranteed saving. The catch is access: super is preserved, meaning you generally can't touch it until you reach 60 and retire. Great for the long game, useless if you might need the money sooner.
Why the mortgage is quietly powerful
Every dollar off your home loan saves you the loan's interest rate — and that saving is effectively tax-free and guaranteed. With rates where they've been, paying down the mortgage can beat the after-tax return of a risky investment, with none of the risk. Keep the money in an offset account and you even retain access to it. For a lot of households, this is the calm, sensible middle path.
Why you might keep the cash
Take-home is the least tax-efficient on paper — taxed at your marginal rate, and taxed again on any earnings if you invest it outside super. But it's completely liquid. If a house deposit, a career break, or simple peace of mind is on the horizon, that flexibility can outweigh a few percentage points.
So how do you choose?
A few rules of thumb that fall out of the maths:
- The higher your marginal tax rate, the more salary sacrifice pulls ahead — the 15% concession is worth more to you.
- The higher your mortgage rate, the more attractive paying it down becomes versus an uncertain investment return.
- The sooner you might need the money, the more weight liquidity deserves — which favours the mortgage (via offset) or cash over locked-away super.
- Many people sensibly split the difference rather than going all-in on one.
Put numbers on it
Compare super, mortgage and cash side by side over your timeframe — including the tax you'd save each year.
The right answer genuinely turns on your tax rate, your loan rate, your timeframe and your appetite for locking money away — which is why a calculator beats a blanket rule. Treat projections as comparisons, not forecasts, confirm the super rules at the ATO, and run big decisions past a licensed financial adviser.