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Salary Sacrifice

More super, less tax

What is salary sacrifice?

Put simply, salary sacrificing is a pre-tax contribution from your income to your super account, so you’ll have more money to enjoy in retirement. These pre-tax contributions reduce your taxable income so you may pay less tax.

How does salary sacrificing work?

First, you need to look at your income and expenses, and work out how much of your income you can comfortably give up now, and invest for your retirement.

Then you need to arrange with your employer to regularly redirect that amount of your wage to your super account instead of your bank account or pay check. This must be in writing.

The Australian Taxation Office will then treat that portion of your income differently for tax purposes – that is, you only pay 15% tax on that sacrificed amount compared to your normal marginal tax rate which in most instances is considerably higher.

Salary sacrifice also increases the amount of money you can enjoy when you retire.

What are the tax benefits?

Tax benefits of salary sacrifice are:

  • The amount you salary sacrifice to super is only taxed at 15%
  • If your Australian tax rate is higher than 15%, then you’ll benefit from a better tax rate on the amount you salary sacrifice
  • If you earn below $37,000 there may be very limited advantage in a salary sacrifice arrangement, so a Government co-contribution is likely to be a more effective way to boost your super.

See how it could work for you

Reduce your tax

Superannuation is one of the most tax effective ways to invest. Salary sacrificing to super reduces your taxable income, and the earnings on your investments are taxed at a low rate too.

See for yourself

Based on your salary, you may be better off making contributions to your super after tax. You might even eligible for Government co-contribution. Speak to your Industry SuperFund to determine the best approach.

$404 total saving
Income tax savings $376 ?
Earnings tax savings $25 ?

How much can I salary sacrifice?

To prevent high income earners using salary sacrificing as a way of avoiding lots of tax, there is a limit on the amount you can contribute each year. These superannuation contribution limits are known as concessional contributions caps. Here are the guidelines:

  • You can salary sacrifice up to the annual limit for pre-tax contributions to superannuation
  • The annual limit includes the 9.5% compulsory super contribution paid by your employer
  • If you’re not yet 50, a maximum of $30,000 in total pre-tax contributions applies
  • If you are 50 or over, the maximum pre-tax contribution is up to $35,000 in 2015/16
  • Any amount above the maximum pre-tax contribution will be subject to the normal tax rate, not the concessional 15% rate

What about my employer’s regular super contribution?

Your salary sacrifice agreement must be in addition to the compulsory Superannuation Guarantee. Your employer must not include any part of your salary sacrifice into their mandatory super contributions (that’s a rule!)

An agreement to salary sacrifice with your employer must:

  • Be in writing (try using your super fund’s form)
  • Clearly state the base salary
  • Clearly state the amount being sacrificed from wages

You can withdraw your agreement at any time.

“But I have no spare $ to sacrifice”

That sounds like a challenge! Try the find extra money for your super gadget.