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.).
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.
- 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. Please refer to the Superannuation Knowledge Hub for more information.
- 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. Refer to the Transfer Balance Cap Knowledge Hub for more information.
- Cash available for discretionary spending will reduce.