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
Crystal 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.
Related links
Last updated: 20 Feb 2019
