How does salary sacrifice work?
Making a before-tax contribution to your super is known as ‘salary sacrifice’1. This is where you choose to give up or ‘sacrifice’ part of your before-tax salary and add it directly into your super account. Doing this will not only help grow your super balance, but could also reduce your taxable income, and therefore the total taxes you pay.
Also, keep in mind that a salary sacrifice arrangement only relates to future salary, not past earnings. For example, you can salary sacrifice a pay bonus only if you entered into an agreement before you became entitled to your bonus.
Potential benefits
-
Grow your super -
Save on income tax
Reduce your taxable income: With some of your pre-tax salary going into super, you’ll lower your taxable income and that you could pay less tax on your income.
Pay a lower tax rate on contributions: Generally, 15% contributions tax is deducted from in your super when your combined income and concessional super contributions are below $250,000.
Additional tax of 15% may apply in respect of your concessional contributions if your income is more than $250,000.
Considerations
When you make extra contributions to your super through salary sacrifice1, you’re adding to your super before income tax is deducted. Because super is generally taxed at 15%, depending on how much you earn, making before-tax contributions to your super can provide a tax-effective way to boost your super savings.
Salary sacrifice contributions are included in the concessional (before-tax) contributions cap, along with the super contributions your employer makes for you and after-tax contributions you claim a tax deduction for. This cap for financial year 2024-25 is $30,000.
From 1 July 2019, you can carry forward any unused portion of the concessional contributions cap for up to five previous financial years, depending on your super balance. You should consider your debt levels before adding to your super.
Salary sacrifice may affect some Government benefits and employee benefits. Consider getting financial advice before deciding if a salary sacrifice arrangement is right for you.
Concessional contributions limits and tax
The government limits the amounts you can contribute to super before and after tax. If you go over the limits, you may pay extra tax.
Tax you pay on before-tax contributions up to the limit
| Your income | Before-tax super contributions limits2 | Tax payable |
|---|---|---|
| Less than $250,000 per year | $30,000 for 2024-25 Financial year | 15% |
| More than $250,000 per year3 | $30,000 for 2024-25 Financial year | 30% |
Is salary sacrificing into your super right for you?
If you’re a middle-to-high income earner, making before-tax super contributions could help you save tax. This is because the tax you pay on your super is generally less than the tax you pay on your income from salary. However, before-tax contributions may not be as tax effective for low-income earners.
If you’re a lower income earner and looking for ways to boost your super, after-tax contributions and government co-contribution could be beneficial and worth considering.
Find out more about the Government co-contribution at australiansuper.com/CoContribution
Salary sacrificed super contributions won’t reduce the ordinary time earnings your employer is required to calculate your super entitlement on or count towards the amount of super guarantee contributions that your employer is required to make to avoid the super guarantee charge.
1 Salary sacrifice may affect some Government benefits and employee benefits. We recommend you consider seeking financial advice before deciding if a salary sacrifice arrangement is right for you.
2 Carry-forward of unused concessional cap amounts may be available for unused potions of the concessional contributions cap from any of the previous five financial years if eligible and your total super balance (all super and retirement income funds) just prior to the start of the current financial year is less than $500,000.
See the Add to your super and retire with more fact sheet for full details.
3 If your adjusted taxable income (including your before-tax contributions) is more than $250,000 in a financial year, your before-tax contributions will be taxed at 30%, to that extent. This extra 15% tax is referred to as Division 293 tax. Find out more at www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds
Case study:
Getting started
Step 1: Ask your employer if they offer salary sacrifice, what your options are and any impacts it might have on your salary and benefits.
Step 2: Complete and provide the Add to your super through your employer form to your employer or payroll department.
Claiming a tax deduction for voluntary after-tax contributions
You can also claim a personal tax deduction for any after-tax personal contributions4 you make to your super. Bear in mind, any after-tax contributions you claim a tax deduction for are treated like before-tax contributions and fall within your concessional contributions cap. Time limits and conditions apply.
HOW TO CLAIM A TAX DEDUCTION4 Before adding to your super, consider your financial circumstances, eligibility, contribution caps that may apply, tax issues and when your super can be accessed. We recommend you consider seeking financial advice.
5 Claiming a tax deduction converts contribution to 'concessional' therefore would not qualify towards government Co-contribution scheme.