Salary sacrifice is an arrangement with your employer to make additional superannuation contributions from your pre-tax salary. Your employer makes the payments on your behalf, and they are taxed at 15% instead of at your nominal tax rate.
What does it all mean? It means that if you find yourself in a higher tax bracket, salary sacrifice might be a good way to boost your super contributions while reducing your taxable income. It means that if you can afford not to have your money right now, you could have more available to you in retirement.
There are some important things to note if you are considering salary sacrifice:
- If you earn less than $18,201, 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 Government co-contribution.)
- You can’t claim deductions or tax offsets for salary sacrifice contributions, because your employer is making the contribution for you. You also can’t claim a deduction for the cost of any administration fees paid to your employer to undertake a salary sacrifice arrangement.
- A salary sacrifice contribution isn’t a fringe benefit and isn’t subject to fringe benefits tax.
- You cannot salary sacrifice income, bonuses or commissions that have already been earned.
- Salary sacrifice contributions are counted under your concessional contributions cap, which you can read about in How your super is taxed.
- When arranging this with your employer, it is best to confirm that your SG contributions have been calculated from your pre-salary sacrifice income, and not your new (lower) taxable income.
- Your salary sacrifice could reduce or eliminate the amount of employer contributions required to be paid by your employer on your behalf.
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