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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 may reduce the amount of tax you are required to pay. 

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 may then treat that portion of your income differently for tax purposes – that is, generally, if your income plus your before-tax super contribution is:

  • 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 may also increase the amount of money you can 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 generally taxed at a concessional rate, as per above.
  • If you earn below $37,000 there may be very limited advantage in a salary sacrifice arrangement, so a Government co-contribution may 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?

There is a limit on the amount you can contribute to your super each financial year and be taxed at the concessional rate. These superannuation contribution limits are known as concessional contributions caps.

The annual cap for concessional contributions is $25,000 p.a. (2017/18 figure). The most common types of concessional contributions are:

  • 9.5% super contributions made by your employer; and
  • any salary sacrifice contributions made.

Any amount above the maximum concessional contributions cap will be subject to a higher tax of 45% (plus Medicare levy) and a charge, not the concessional rate

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.

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.