Salary Sacrificing to Super

You've likely heard of salary sacrificing to your super, but do you know what it actually means and how to make the most of it?

Salary sacrifice (often included as part of your salary packaging) occurs when you, as an employee, agree to forgo an amount of your salary pre-tax in return for an equal amount to be contributed to your super by your employer. 

The reduction to your gross salary (salary before tax), is the amount salary sacrificed.

The salary sacrifice contribution attracts the 15% contributions tax when it goes into super, instead of your marginal tax rate.

For high-income earners (over $250,000) this tax has been increased to 30% on the portion of contributions that take income over $250,000. For low-income earners (under $37,000) the first $500 of this tax will be refunded back into their account via the Low Income Superannuation Tax Offset.

The benefits of salary sacrificing to super are:

1. The total tax you pay may be reduced

The personal tax you pay will be based on the reduced amount of salary (after the salary sacrifice). The value of your super contribution will be subject to contributions tax of 15% (increasing to 30% for those earning more than $250,000), which will be deducted from your super contribution.

2. You are investing money in a more tax effective environment

You have the choice to invest inside or outside of super.  The tax rate inside super is a maximum of 15%, which may be lower than other investment options outside of super which will be taxed at your personal tax rates.

3. You are putting more money away for retirement

It can form part of your savings plan.

It's important to note that everyone’s financial situation is different. The benefits of salary sacrifice (as well as the arrangements offered by your employer) will differ from person to person. 

While salary sacrificing into super is a tax-effective way to build your retirement nest egg, you should consider your net cash flow and any other arrangements you currently have in place.

There are other super strategies available such as co-contribution, spouse contribution or superannuation contribution splitting. 

We'd be happy to help you understand the ins and outs of this strategy - the start of a new financial year is a great time to start!

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