Salary sacrifice is where you choose to give up or ‘sacrifice’ part of your before-tax salary and add it directly into your super account.
Learn more about...
- How does salary sacrifice work?
- Get started now
- What you should know
How does salary sacrifice work?
Salary sacrifice is an arrangement set up through your employer to boost your super.
By making payments to your super from your before-tax salary, the contributions to your super are taxed at 15% instead of your income tax rate, which might be as high as 46.5% (including the Medicare levy). If you are in a higher income tax bracket than 15%, then salary sacrificing into your super can help you minimise tax paid, while still benefiting from a growing super balance.
The amount you salary sacrifice is counted as an employer contribution to your super, which is taxed at just 15%.
This means that the money going in to your super may be taxed at a much lower rate than the money that hits your bank account each payday.
And the salary you have left is reduced so you pay less income tax.
It’s important to remember though, that you generally can’t access any money you contribute to super until your preservation age and permanently retire from the workforce.
Small amounts can make a big difference
You don’t have to salary sacrifice a lot – even a small amount contributed to your super now can make a big difference over time.
Just $25 extra a week from age 35 could add $58,500 to your final retirement amount. An extra $50 a week could add $117,100. Get the lifestyle you want in retirement by saving a little more now.
Get started now
It’s easy to get started:
- Use our Contributions Adviser to help work out how much to contribute
- Talk to your employer to make sure it’s okay with them
- Log in to your account and complete the Salary sacrifice form
- Give the completed form to your employer
What you should know about salary sacrifice
Not as effective for low-income earners
If you earn below $25,000 there may be little advantage in a salary sacrifice arrangement because the tax rate on your salary is about the same as the tax on your super contributions. A Government co-contribution would be a more effective way to boost your super.
Make sure you protect your existing benefits
If you have benefits such as compulsory employer super contributions, holiday loadings, shift allowances and overtime that are based on actual salary level, these may be reduced under a salary sacrifice arrangement. To protect these, have a written agreement with your employer that details how these payments will be calculated – our form helps you with this.
Deductions
You can’t claim deductions or tax offsets for salary sacrifice contributions. This is because your employer is considered to have made the contribution. You also can’t claim a deduction for the cost of any administration fees paid to your employer to enter into and maintain a salary sacrifice arrangement.
Fringe benefits tax
A salary sacrifice contribution isn't a fringe benefit and isn't subject to fringe benefits tax. It shouldn't be reported as such on your PAYG payment summary.
Restrictions to be aware of
- Your employer may limit the amount you can salary sacrifice
- You cannot only salary sacrifice any income or bonuses that you have already earned
- You cannot salary sacrifice award payments
- You cannot decide to put bonus or commission payments into super as salary sacrifice after they have been earned
- There’s a limit of $25,000 a year for combined salary sacrifice, employer Superannuation Guarantee, and other employer contributions. Anything that exceeds this limit will be taxed at the highest rate of 46.5%
- If you’re aged 50 or over you can contribute $50,000 a year until 1 July 2012 at the low tax rate. After that time, the limit will decrease to $25,000 regardless of your age. Again, anything that exceeds this limit will be taxed at the highest marginal tax rate of 46.5% (including the Medicare levy).
More information
Comprehensive information on salary sacrifice is also available from the Australian Taxation Office (ATO) website or by contacting 13 10 20.