Salary sacrifice is an arrangement with your employer to make additional superannuation contributions from your pre-tax salary each pay cycle. Your employer makes additional contributions on your behalf. These contributions are taxed at 15% instead of at your personal income tax rate.
Making extra contributions can help grow your super faster and provide you with more when you come to retirement.
Salary Sacrifice is also called:
- concessional contributions
- before-tax contributions
What are the tax benefits of salary sacrifice?
If your annual income is above $45,000 and your tax rate is 32.5% or more, salary sacrifice could be a good way to boost your super contributions and reduce your taxable income at the same time.
Example: Matt boosts his super and pays less tax*
Matt earns $65,000 before tax, excluding his employer’s super guarantee contribution. If Matt decides to redirect $5,000 of his pay into salary sacrfice super contributions, he will save $1,050 in tax, with the extra money going into his super fund.
|Matt’s income||Without salary sacrifice||With salary sacrifice|
|Less salary secrifice to super||$0||$5,000|
|Less tax + Medicare levy||$12,867||$11,067|
|Take-home (net) pay||$52,133||$48,933|
|Employer super contribution||$7,150||$7,150|
|Plus salarly sacrifice||$0||$5,000|
|Less contributions tax||$1,072.50||$1,822.50|
|Net super contribution||$6,077.50||$10,327.50|
In this scenario, Matt’s take home pay will drop by $3,200. He will save $1,800 tax on income and he will have an extra $4,250 in his super account.
*This example is illustrative only and does not guarantee an outcome. It is based on current rates and legislation, which are subject to change. A 15% tax applies to super contributions.
Super contributions calculator
See how much extra savings could have through making extra contributions to your super with the super contributions calculator.
What do you need to consider before salary sacrificing?
- If you earn less than $45,000, there may be no taxation benefit from salary sacrificing into super. (See How your super is taxed.) You may be able to more effectively boost your super with a Super co-contribution.
- Salary sacrifice contributions are counted under your concessional contributions cap, which you can read about in How your super is taxed. If you go over the cap, you may have to pay extra tax.
- When arranging to salary sacrifice with your employer, check that your SG contributions (and any other salary-based benefits) are being calculated from your pre-salary sacrifice income, and not your new (lower) taxable income.
- Salary sacrifice contributions can’t be used to reduce your SG contributions. For example, if you choose to salary sacrifice 5% of your salary to super, your employer must still pay the 11% SG rate plus the salary sacrifice amount.
- Generally, you’re not locked into a salary sacrifice arrangement and can start, stop, decrease or increase your contributions at any time.
- Since your employer is making the contribution for you, you can’t claim deductions or tax offsets for salary sacrifice contributions.
- A salary sacrifice contribution isn’t a fringe benefit and isn’t subject to fringe benefits tax.
Contact the payroll team at your workplace to discuss putting a salary sacrifice arrangement in place.
We’d recommend getting all the details down in writing. That way, both you and your employer have a record you can check back against if you need to make any changes.
You will need to complete the Contribution form and hand to our employer to set up salary sacrifice.
Alternatively, you can discuss whether salary sacrificing may be appropriate for your circumstances with a First Super Financial Planner at no extra cost. This service is covered by your membership fees.