Salary sacrifice

What is salary sacrifice?

Salary sacrifice is an easy way for you to make additional payments into your super. By setting up an agreement with your employer, your employer will redirect a proportion of salary (before-tax) into your super account.

It’s a great way to increase your super balance on top of the SG contribution your employer is required to make on your behalf. 

Before-tax salary paid directly into your super account is taxed at 15%.  If this is less than your normal tax rate, you could save more in super and reduce your taxable income. 

Seek financial advice to make sure salary sacrifice is right for you. 

Savings and tax benefits of salary sacrifice

  • Depending on your income, there can be considerable savings and tax benefits to salary sacrifice. The additional payments you make through salary sacrifice are taxed at 15%. This is likely to be lower than your normal taxable income, so you could save more in super than if you had made an after-tax contribution.
  • By reducing your salary through salary sacrifice, you may reduce your overall taxable income.
  • Over time, you’ll see the power of compounding interest in your super fund. As your account grows over time you’ll find that even a little extra contribution now can add much more to your savings in retirement. 

How to set up salary sacrifice

  • Get in touch with our Helpline or a financial adviser to make sure salary sacrifice is right for you. 
  • Calculate how much and how often you would like to make additional contributions.
  • Check with your employer if you can salary sacrifice. If your employer does not allow salary sacrifice, then you can make a personal contribution and claim a tax deduction.
  • Complete a salary sacrifice agreement form and pass onto your employer to complete.

FORMS AND CALCULATORS

 

Contribution (concessional) limits

There are limits on how much you can contribute to your super. 

Concessional contribution limits 2023 - 2024

  • For the 2023 - 2024 financial year, the concessional cap is $27,500 for all individuals regardless of age.

Calculating your concessional contributions

Salary sacrifice is considered as a “concessional” contribution. Concessional contributions include:

  • Salary sacrifice
  • 11 % Super Guarantee (SG) payments made by your employer
  • A personal contribution for which you make an income tax deduction claim

If you are wanting to salary sacrifice you will need to take into consideration the concessional contributions made by your employer and any other personal contributions (after-tax) for which you plan to claim an income tax deduction, to ensure you stay within the concessional tax limits.

Exceeding the concessional contribution limit?

Carry-forward rule

If you have a total super balance of less than $500,000 from the previous financial year, you can carry-forward any unused concessional caps on a rolling 5-year basis.

This means if you don’t contribute the maximum annual allowable amount into your super, you can increase your contributions in following years by those unused amounts (for a maximum of five years, after which they will expire) by using the carry-forward rule. 

This rule applies from 1 July 2018 meaning unused concessional caps from before the 2018/19 financial year cannot be carried forward.

For more information regarding contributions caps  visit the ATO website.