When Salary Packaging Goes Wrong: How Calvin Lost Thousands in Tax
- pdbptax
- Sep 5
- 2 min read
Today, many companies use bonuses to reward strong performance and retain valuable employees. For high performers, a bonus is a significant recognition of their efforts — yet it also brings concern about tax. While everyone aspires to higher earnings, few are pleased when faced with a sizeable tax bill. However, if the income is structured well, the tax liability can be reduced significantly.
The Scenario
In the 2025 financial year, Calvin, a high-performing sales manager, closed $1.65 million in sales — an achievement that earned him a substantial performance bonus. Thinking strategically, Calvin decided to salary sacrifice his bonus into superannuation, aiming to have it taxed at 15% instead of his 45% top marginal rate
Why It Matters
Redirecting bonuses into super can deliver major tax benefits, especially for high-income earners:
Taxable income is reduced.
The bonus is taxed at just 15% contributions tax (within the $30,000 concessional contributions cap).
Retirement savings receive a healthy boost.
The Catch
Unfortunately, Calvin acted too late. He entered into the arrangement after he had already become entitled to the bonus. That made the agreement invalid for tax purposes.
The result?
The bonus was taxed as ordinary salary at 45% + 2% Medicare Levy.
It did not count as a concessional super contribution.
Calvin lost thousands in potential tax savings.
✅ The Lesson
The lesson is simple: timing is critical. Salary sacrifice arrangements must be in place before you become legally entitled to your bonus. Once the entitlement arises, it is too late to restructure the income for tax purposes.
Failing to act early can mean the difference between paying 15% contributions tax or nearly 47% in income tax. A proactive discussion with your employer or adviser, well before bonus entitlements are determined, can prevent costly mistakes. Calvin’s experience is a reminder that poor timing can erase thousands of dollars in potential savings.
