Salary Sacrifice To Superannuation

What is Salary Sacrifice?

Sacrificing some of your wage (salary) to contribute to super can mean you pay less tax and have more in your super account. The contributions are taken from your pay before you pay tax on them and then deposited to your super fund. These contributions are treated as concessional contributions in your super fund and taxed at the super concessional tax rate of 15% (30% if your income is over $250,000 p.a.).

The sacrificed component of your total salary package is not counted as assessable income for tax purposes.

How does it work?

• A formal agreement is put in place between yourself and your employer to make the salary sacrifice contributions.
• Your employer deducts the contributions from your salary.
• The contributions are directed to your nominated fund.
• All contributions are within the concessional contribution cap.
  
• You can use the catch up contributions provision to contribute at a higher rate than the concessional cap. If your super balance is below $500,000 on 30 June of the previous financial year, you can carry forward any unused concessional contribution cap for up to 5 years (starting from 2017/18).

What are the benefits?

• Adding more contributions to super can increase your savings for retirement.
• These contributions will be made pre-tax and subject to a lower rate of tax in super of 15% (30% if your income is over $250,000).
• Your employer will manage the payments for you.
• Contributing your cash flow surplus before it is paid to you, reduces the likelihood of you spending it on other discretionary items.

What should I be thinking about?

• Not all employers offer this service, you need to check with them to make sure they can facilitate this arrangement. This agreement should be formal and in writing.
• If your income is less than $37,000 p.a., there is little tax saving and therefore benefit, to salary sacrificing to super.
• You must be eligible to contribute to super and meet the work test.
• A concessional contribution cap applies. Exceeding the concessional cap will result in additional tax payable.
• You will not be able to access this money until you meet a condition of release such as retirement.
• Wage increases may result in exceeding the concessional cap.
• The Transfer Balance Cap means that a limit is placed on how much you can commence an account-based pension at retirement. The remaining balance will need to stay in super.
• Cash available for discretionary spending will reduce.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.

Published: September 2022.

© Copyright 2022.