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Salary sacrifice
Salary sacrifice is an arrangement between you and your employer where you choose to give up or 'sacrifice' part of your before-tax salary to add it directly into your superannuation account.
By doing this you effectively reduce your gross (taxable) salary, which means you could pay less income tax. As employer super contributions are taxed at a flat 15% (equal to the lowest marginal rate of tax), then the sacrificed amount could be more favourably taxed than if taken as cash salary.
There is a limit of $50,000 per year that you may receive as Concessional Contributions (employer Superannuation Guarantee, salary sacrifice and other employer contributions). All Concessional Contributions that exceed this limit will be taxed at the highest rate of 46.5%. Members aged 50 years or over are entitled to a higher limit of $100,000 p.a. until 1 July 2012, when the limit will revert to $50,000 for all members regardless of age. If you exceed this limit the contributions will be taxed at the highest marginal tax rate of 46.5%. More ...
Boosting your super savings
The chart below shows how salary sacrifice contributions can boost your superannuation savings over the long term.
Just $25 extra a week from age 35 could add $58,500 to your final retirement income. An extra $50 a week could add $117,100. That's a small extra saving now to get the lifestyle you want in retirement.
Assumptions based on AustralianSuper super calculator: Opening balance $50,000 at age 35, annual salary $60,000, 9% employer contributions, before-tax salary sacrifice contributions of $25 and $50 per week, 7.5% Balanced Option investment return, $1 weekly administration fee, 0.63% investment management fee, retirement age of 65. Final balances expressed in today's dollars, calculated over a 30 year investment period.* Investment returns are not guaranteed as all investments carry some risk. Past performance gives no indication of future returns.
*Source: AustralianSuper super calculator
Click here to view the other tax-related issues you should be aware of.
How to make a salary sacrifice contribution
- Check if your award or agreement allows for salary sacrifice, or your employer is willing to make salary sacrifice contributions on your behalf (they're not obliged to if it's not stipulated in your award or agreement).
- You may wish to seek independent tax advice from a taxation specialist or consult a financial planner to make sure that salary sacrifice is suited to your circumstances.
- Arrange with your employer to make salary sacrifice payments from your 'before-tax' salary. You might want to enter into a written agreement that clearly states the amount of the salary sacrifice contribution and its frequency. The agreement should also outline whether the amount of Superannuation Guarantee contributions your employer must make for you will be reduced because of the salary sacrifice arrangement.
- If your employer has agreed to make salary sacrifice contributions on your behalf, you may wish to download and complete the salary sacrifice request letter and return it to your employer or payroll manager. Please do not return the letter to Australian Super. View letter
Important facts about salary sacrifice
Not as effective for low-income earners
If you earn below $25,000 then there may be little advantage to you in a salary sacrifice arrangement because the tax rate on your salary is about the same as the tax on your superannuation contributions.
Make sure you protect your existing benefits
Benefits such as compulsory employer superannuation payments, holiday loadings, shift allowances, overtime etc. that may be based on actual salary level may be reduced under a salary sacrifice arrangement – you should have a written agreement with your employer that details the basis on which these payments will be calculated.
Salary sacrificed amounts tied up until retirement
You generally cannot access money you contribute to superannuation under a salary sacrifice agreement until you reach preservation age and retire from the workforce.
There are some restrictions:
- Your employer may place limitations on the amount of salary sacrifice they will allow. This is currently being reviewed by the Federal Government.
- You can only salary sacrifice future benefits.
- You cannot salary sacrifice award payments.
- You cannot decide to put bonus or commission payments into superannuation as salary sacrifice after they have been earned.
- There is a limit of $50,000 per year that you may receive as Concessional Contributions (employer Superannuation Guarantee, salary sacrifice and other employer contributions). All Concessional Contributions that exceed this limit will be taxed at the highest rate of 46.5%. Members aged 50 years or over are entitled to a higher limit of $100,000 p.a. until 1 July 2012, when the limit will revert to $50,000 for all members regardless of age. If you exceed this limit the contributions will be taxed at the highest marginal tax rate of 46.5%. More ...
More information
As well as the important information above, comprehensive information on salary sacrifice is available from the Australian Taxation Office or by calling the ATO Helpline on 13 10 20.
If your employer has agreed to make salary sacrifice contributions on your behalf, you may wish to download and complete the salary sacrifice request letter and return it to your employer or payroll manager. Please do not return the letter to AustralianSuper.
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