Salary Sacrifice And Your Super
Salary sacrificing to make additional contributions to your super fund can help grow your super balance for a better financial position at retirement. Before making an arrangement, you should explore the potential benefits and your financial goals to ensure it’s the right fit for your circumstances.
Salary sacrificing is an agreement with your employer for you to receive less income before tax in return for benefits of a similar value paid for by your employer. Depending on the industry you work in, benefits could include car or mortgage payments; tools or protective clothing; or super contributions.
Most employers offer salary sacrifice to super for their employees, meaning you could choose to have part of your pre-tax income paid into your super fund in addition to your super guarantee (SG) entitlement (11.5% for 2024–2025). Super contributions made by salary sacrifice are concessional contributions, taxed at 15% instead of at your marginal income tax rate.
Potential benefits
- Your employer will set up and automatically send the contributions to your super fund.
- Regular additional payments, especially if you start early, will accelerate the growth of your super balance and make a big difference at retirement.
- Lower taxable income may help you pay less tax, stay in a lower tax bracket, reduce the Medicare Levy or qualify you for certain concessions.
- Up to $50,000 of salary sacrifice contributions are eligible to be accessed through the First Home Super Saver Scheme.
- Salary sacrificing to super will not reduce the amount of SG contributions your employer provides.
Points to consider
- Less take-home pay may be challenging if you have a tight budget or immediate financial needs like a mortgage.
- If you aren’t using the funds to purchase your first home, you generally won’t be able to access any of the money added to your super fund until you reach 65 or you retire after age 60, so you will need enough funds outside of super to cope with emergencies or other shorter-term financial issues.
- The amount of “concessional” contributions you can add to your super each year is capped ($30,000 for 2024–2025): if you go above the cap, contributions will be taxed at your marginal tax rate (less a 15% tax offset). Concessional contributions include SG and salary sacrifice contributions, as well as contributions you claim a tax deduction for.
- You won’t be able to claim a tax deduction on salary sacrificed super contributions, as you won’t have paid income tax on them.
- If you earn under $45,000 a year, salary sacrificing into super might not be as beneficial due to your lower income tax rate.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
