Salary sacrifice super
Tax effective super contributions
Making voluntary super contributions is a great way to boost
your retirement nest egg. When you salary sacrifice into super you
may also be able to reduce the amount of tax you pay.
What is salary
sacrificing?
Salary sacrifice is an arrangement between you and your employer
where a portion of your pre-tax salary is used to provide benefits
of a similar value. This may include things like cars, computers,
school fees and super contributions.
Salary sacrifice into super
A salary sacrifice to super is where you and your employer agree
to pay a portion of your pre-tax salary as an additional concessional contribution to your
superannuation account. This is typically a tax-effective strategy
if you earn more than $37,000 a year. Depending on your income and
how much you are willing to contribute to super, a mix of
concessional and non-concessional may be your best
option.
Work out whether to make extra contributions before or after
tax.
Super
contributions optimiser
How does salary sacrifice work?
If you decide to salary sacrifice into super you will need to
ask your employer to redirect a portion of your pre-tax pay to your
super fund. Like your employer superannuation guarantee (SG)
contributions, salary sacrificed contributions are taxed at a rate
of 15% when they are received by the fund. For most people this
will be much lower than your marginal tax rate which is why they are
known as 'concessional contributions'.
Changes to super contributions in 2017
Super contribution limits changed on 1 July 2017. For more
details go to the Australian Tax Office (ATO) website.
Super concessional caps
Concessional contributions include your employer's 9.5% super
guarantee contributions and your own salary sacrificed
contributions. The combined total of these cannot exceed $25,000
each financial year. For more details see the ATO's information on
key superannuation rates and
thresholds.
Case study: Crystal boosts her super by salary sacrificing
Crystal earns $90,000
before tax, excluding her employer's super contribution. If Crystal
decides to redirect $10,000 of her pay into salary sacrifice super
contributions, she will save $3,450 in tax, with the extra money
going into her super fund.
| Crystal's income |
Without salary sacrifice |
With salary sacrifice |
| Gross
salary |
$90,000 |
$90,000 |
|
Less salary sacrifice to super |
$0 |
$10,000 |
|
Less tax + Medicare levy |
$22,067 |
$18,617 |
| Take home
(net) pay |
$67,933 |
$61,383 |
|
Crystal's super |
|
|
| Employer
super contribution |
$8,550 |
$8,550 |
|
Plus salary sacrifice |
$0 |
$10,000 |
|
Less contributions tax |
$1,282 |
$2,782 |
| Net super
contribution |
$7,268 |
$15,768 |
Assumptions: The figures used in this table are estimates only
and are based on 2018-19 income tax rates, including the low and
middle income tax offset, and a Medicare Levy of 2%. Employer super
contributions remain the same after salary sacrifice.
In this scenario, Crystal's take home pay will drop by $6,550,
she will save $1,950 in tax on income and super and she will have
an extra $8,500 in her super.
See the ATO for more details on salary sacrifice arrangements for
employees.
Make sure your employer contributions don't drop
Before you sacrifice some of your salary to super make sure your
employer will continue to calculate your super guarantee payments
on your gross income, before salary sacrifice. It is best to get
this agreement in writing.
When you salary sacrifice, your employer is entitled to
calculate super contributions on your reduced salary, however many
employers will still calculate super contributions on your original
gross salary.
Check your super is being
paid
Make sure you're getting what you're entitled to. Your employer
must transfer super to your super fund at least once a quarter,
although they can choose to transfer super more often. Check you
are receiving the correct amount of super by logging into your
online super account, contacting your super fund or logging into
your myGov account.
If you think you're not getting paid the correct amount of super
talk to your employer. Ask how often they're paying your super,
which fund they're paying it to and how much they're paying.
If your employer is not paying your super, report it to the ATO
here: Report unpaid super contributions from your
employer.
Pros and cons of
a super salary sacrifice
There are a many benefits of salary sacrificing some of your
pre-tax salary into super, they include:
- You will pay less tax
- You will boost your retirement savings
- Investment earnings in super are concessionally taxed.
There are also a few things to consider before you decide to
increase your super contributions:
Accessing your voluntary super
contributions to buy a home
Under the first home saver super (FHSS) scheme, first
home buyers are able to use up to $30,000 of their voluntary
contributions to purchase a home.
From 1 July 2017, up to $15,000 of voluntary contributions made
over a financial year ($30,000 in total) can be withdrawn to buy
your first home. Withdrawals can be made from 1 July 2018.
Salary sacrificing into super can save tax and
really boost your retirement nest egg. But make sure you know all
the rules and have considered your options before you dive in. Our
range of super and retirement calculators can help you make
informed decisions about your super.
Related links
Last updated: 22 Oct 2018
