Salary sacrificing is one of the simplest and most effective super saving strategies. Small things you do now to boost your super balance can reap rewards later.
Salary sacrifice is an agreed arrangement that you have with your employer so that you can receive part of your gross salary as a benefit rather than as a salary. The value of this benefit is paid from your gross salary, i.e. before tax.
This means that your gross salary is reduced by the cost of the benefit before the income tax is calculated.
Are there tax savings?
The most popular form of salary sacrifice is a regular contribution into your super through your employer, this comes from your gross salary.
Some of the tax benefits associated with this include:
- Sacrificing some of your salary into your super reduces your taxable salary. This could mean you pay less income tax.
- Your salary sacrifice contribution is taxed at a rate of 15%1 which is lower than the marginal tax rate for most people. It’s your marginal tax rate that determines the potential savings you could get from salary sacrifice.
Put simply, most people with a taxable income of more than $18,200 can obtain an immediate tax saving by sacrificing part of their salary and contributing that amount into their super.
This is due to their marginal tax rate being higher than the 15% tax on super contributions.
How much can I salary sacrifice?
There are limits to the amount you can contribute to super before and after tax. If you go over the limits, which are called contribution caps, you may pay extra tax.
Salary sacrifice contributions are regarded as concessional (before tax) contributions. Concessional contributions include assessable contributions made by your employer and any other contributions on which you may claim a tax deduction.
The concessional contribution cap is currently $25,000 per annum, regardless of your age. However, if your total superannuation balance was less than $500,000 at 30 June of the previous financial year, you can make ‘carry-forward’ concessional super contributions.
Find out more about carry forward concessional contributions and if it’s right for you.
Things to consider
It’s important to remember that salary sacrifice arrangements will reduce your take home pay. However, depending on your income, it can be a tax effective way to contribute more into super. There are a few other things to consider:
• Your salary sacrificed super contributions won’t count towards the amount of super guarantee contributions that your employer is required to make
• You can’t access your super until you meet a condition of release such as reaching preservation age and retiring.
How do I start salary sacrificing?
If you would like to set up salary sacrificing, you can provide one of the below forms to your employer.
To find out how salary sacrifice could help you in the future, you can use our Retirement Projection calculator.