What is salary sacrificing?
Salary sacrificing is where you nominate a certain amount of your pre-tax salary to go straight into your super. You can grow your super and reduce your tax at the same time.
Your reduced salary (that is, your salary minus the amount you salary sacrifice to super) becomes your assessable income for tax purposes.
For example, say you earn $70,000 and contribute $3,500 of your salary to super using salary sacrifice. At tax time, you’ll only be taxed on $66,500 ($70,000 less $3,500).
If you earn more than $58,980, salary sacrifice may help you qualify for the government co-contribution. For example, if you earn $60,000, you may choose to salary sacrifice $5,000 in order to access a co-contribution of up to $150.
What you need to know
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People on a higher marginal tax rate are more likely to benefit from salary sacrificing.
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The amount you salary sacrifice is not subject to pay as you go (PAYG) withholding tax and will not appear on your payment summary.
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Your salary sacrifice contribution will be taxed at 15% when it’s received by your super fund. If your super fund does not have your tax file number, an additional tax called the ‘No-TFN Tax’ will be deducted from your super plan.
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Limits apply: employer contributions, including salary sacrifice, of more than $50,000 p.a., or $100,000 p.a. if you’re aged 50 or over, will be taxed at 46.5%.
Getting started
Check whether your employer allows salary sacrifice arrangements. If they do, you’ll need to consider:
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How much you want to contribute from your salary. Usually you can nominate the amount as either a percentage or fixed dollar amount.
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Whether you want to sacrifice any of your bonus, if you receive one, to super.
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Whether or not you would like to salary sacrifice any leave entitlements.
It’s a good idea to talk to a financial planner to work out how you can best take advantage of this great strategy.