Salary sacrifice

Salary sacrificing is where you choose to make an arrangement with your employer to reduce your cash salary and have the difference paid into your superannuation (super) account as employer contributions.

What are the benefits?

Salary sacrificing into your super is a great way to increase your super balance. This means you will have more money when you get ready for retirement.

Another plus of salary sacrificing is the tax benefits. The tax advantage for most employees is that salary sacrificed contributions are only taxed at the rate of 15 per cent going into the super fund, compared with cash salary, which is taxed at your marginal tax rate.

What are the limits to salary sacrificing?

There is no limit, however contribution caps are in place restricting the amount of money that can be salary sacrificed into super before additional tax is payable. The concessional cap is $25,000. If you exceed the cap, the excess will be taxed as income in your hands and you have a choice of either having those contributions returned or added to your non concessional cap. All employer contributions and personal contributions where you claim a tax deduction, will be accrued in determining whether the cap has been exceeded.

Compare your salary with and without salary sacrifice

An easy way to see the impact of salary sacrifice is through our salary sacrifice calculator. It shows you the impact of making a before or after-tax contribution into super.

Some things you may need to consider

Salary sacrificing into super may not suit everyone. You should consider some of the possible impacts:

  • Talk to your employer to find out if they offer salary sacrificing and if will affect any other employment benefits you receive, such as compulsory Superannuation Guarantee contributions, annual leave and leave loading.
  • Realise that people on a higher marginal tax rate are more likely to have bigger benefits from salary sacrificing.
  • There are caps to how much you can contribute to your super each year (this is called a concessional contribution cap). Speak to talk to your adviser or visit the ATO website to make sure you don't hit the cap.
  • Figure out if you would like to salary sacrifice a flat sum, a reoccurring sum or a percentage of your salary. Alternatively you could look into sacrificing part or all of any future bonus payments to your super, but make sure that you speak to your employer about this before you get your bonus.

You may want to speak to your financial adviser before deciding to salary sacrifice. If you don't have an adviser, click here to find one near you.