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.

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Video: Effie Zahos' advice for young women

Effie Zahos' advice for young women

In this video, Effie talks about salary sacrificing in to your super.

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

Woman in her workplace showing how to use equipmentCrystal 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.

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Last updated: 22 Oct 2018