Salary sacrifice is an arrangement with your employer to make additional superannuation contributions from your pre-tax salary each pay cycle. Your employer makes the payments on your behalf, and they are taxed at 15% instead of at your personal income tax rate.
What are the benefits?
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: Jack boosts his super and pays less tax
When Jack salary sacrifices $5,000 to his super each year, his take-home pay will only drop by $3,200. However, he will save $1,050 in tax and contribute an extra $4,250 to his super account.
|Jack’s income||With salary sacrifice||Without salary sacrifice|
|Less before-tax contribution||($5,000)||N/A|
|Less income tax*||-$9,987||$11,787|
*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.
What do you need to consider before salary sacrificing?
- 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.
- 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 10% 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.
Alternatively, you can discuss whether salary sacrificing may be appropriate for your circumstances with a First Super Financial Planner.
We’re here to help. So let’s talk.
If you have any questions, please don’t hesitate to call our Member Services Team on 1300 360 988, or email us.