More super, less tax
What is salary sacrifice?
Salary sacrificing is a pre-tax contribution from your income to your super account, so you’ll have more money to enjoy in retirement. The amount you choose comes out before you are paid, reducing your taxable income and giving an immediate tax benefit. This approach makes it as painless as possible!
You can also salary sacrifice for other items such as a car or computer.
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. 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.
Asking your employer to arrange salary sacrifice is usually as simple as sending them an email.
Suggested email text:
Re: Salary Sacrifice
Please deduct $XXX per month from my salary and send it to the same super fund as my super guarantee contributions.
Please also confirm this does not affect the employer super guarantee dollars that you are currently sending to the fund.
- under $250,000 p.a. you pay 15% tax on your salary sacrifice contributions;
- greater than $250,000 p.a. you pay 30% tax on your salary sacrifice contributions.
Salary sacrifice can also increase the amount of money you enjoy when you retire.
Not all employers offer salary sacrifice arrangements.
What are the tax benefits?
Tax benefits of salary sacrifice are:
- The amount you salary sacrifice to super is generally taxed at a concessional rate.
- If you earn below $37,000 there may be very limited advantage in a salary sacrifice arrangement, so a Government super co-contribution may be a more effective way to boost your super.
See how it could work for you
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.
How much can I salary sacrifice?
The annual cap for before-tax super contributions is $25,000 p.a. in 2018/19. This includes the regular super contributions made by your employer (usually 9.5%), any salary sacrifice contributions and any personal contributions where you intend to claim a tax deduction.
You can also contribute after tax to take advantage of the higher caps.
What about my employer’s regular super contribution?
Your salary sacrifice agreement should be in addition to the compulsory Superannuation Guarantee. Your employer should not include any part of your salary sacrifice into their mandatory super contributions.
“But I have no spare $ to sacrifice”
That sounds like a challenge! Try the find extra money for your super gadget.