Salary sacrifice super

Tax effective super contributions

Making voluntary super contributions is a great way to boost your retirement nest egg, and it could also reduce the amount of tax you pay.

Here we explain what salary sacrificing means, how to salary sacrifice your super, and how to ensure you're paid the right amount of super.

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.

To salary sacrifice into superannuation, your employer agrees to pay some of your pre-tax salary as an additional concessional contribution to your super 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 can afford to contribute, a mix of concessional and non-concessional super contributions may be a good option.

How to salary sacrifice into super

Ask your employer to direct a portion of your pre-tax pay to your super fund. Like your employer superannuation guarantee (SG) contributions, salary sacrificed contributions are taxed at 15% when 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.

Work out whether to make extra contributions before or after tax.

Super contributions optimiser

Pros and cons of a super salary sacrifice

The benefits of salary sacrificing some of your pre-tax salary into super include:

  • you will pay less tax
  • you will boost your retirement savings
  • investment earnings in super are concessionally taxed.

However, be aware that:

  • your money will be locked away until you reach preservation age and meet a condition of release
  • there are limits on how much you can salary sacrifice into super.

Super concessional caps

Concessional contributions include your employer's 9.5% super guarantee contributions and your own salary sacrificed contributions. Together, the maximum amount of contributions allowed each financial year is $25,000. For more details see the Australian Taxation Office's (ATO's) information on key superannuation rates and thresholds.

Case study: Crystal boosts her super by salary sacrificing

Woman in her workplace showing how to use equipmentCrystal earns $90,000 before tax, excluding her employer's super contribution. If she 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.

For more information, see the ATO's webpage on salary sacrifice arrangements for employees.

Make sure your employer contributions don't drop

Before you salary sacrifice, make sure your employer will continue to calculate your super guarantee payments on your gross income, before the salary sacrifice amount is deducted. It's 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 some choose to do it more often. Check you are receiving the right 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 into and how much they're paying.

If your employer is not paying your super, report it to the ATO.

Using your voluntary super contributions to buy a home

Under the first home super saver (FHSS) scheme, you can use up to $30,000 of your voluntary contributions to buy your first home. Up to $15,000 of voluntary contributions made over a financial year ($30,000 in total) can be withdrawn to buy your first home.

For more information, see the ATO's webpage on the FHSS scheme.

Salary sacrificing into super can save tax and boost your retirement nest egg. Be sure to consider your options before diving in. Our range of super and retirement calculators can help you make informed decisions about your super.

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Last updated: 19 Jul 2019