Salary sacrifice is another way that could allow you to reduce your taxable income and grow your super.

Unlike personal after-tax contributions, salary sacrifice allows you to top up your super before your salary is taxed. Both ways can offer tax advantages, but there are some additional advantages to salary sacrifice.

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What is salary sacrifice?

Simply put, salary sacrifice is an agreement between you and your employer to pay part of your salary before tax into your super account, instead of your bank account.

By salary sacrificing your taxable income will be lower, and so could your tax bill.

There are some additional benefits to salary sacrifice when compared to after-tax personal contributions:  

Salary sacrifice (before-tax) contribution After-tax contribution
Your contribution is paid by your employer from your salary before tax is deducted,
which reduces your taxable income
Your contribution is paid from your net salary i.e. after tax is deducted.  This does not reduce your taxable income during the financial year.
There is no additional paperwork to complete at tax time If you want to claim a tax deduction, you must complete a notice of intent and claim
this in your tax return
Once you set up your salary sacrifice arrangement, there’s nothing more to do - your employer will manage your contributions You need to pay contributions directly to your super account via BPAY, EFT or cheque. Some employers may allow this direct from your pay

Salary sacrifice is an arrangement between you and your employer. To set up regular payments, contact your payroll or HR department to confirm they offer salary sacrificing.

There are no special requirements about eligibility – anyone with an employer who offers salary sacrificing can do it, although there are limits on the amount of
concessional contributions.

It’s important to understand however that contributing to super through salary sacrificing may reduce the amount your employer contributes. However,
Legislation has been introduced to Parliament to ensure that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum SG contributions.

Your employer is required to contribute 9.5% of your gross income to super.

Currently, when you salary sacrifice into super, your gross income for SG purposes may be reduced by that amount. So if you’re earning $55,000 per annum before tax and you sacrifice $5000, then your gross income for the purposes of calculating the 9.5% your employer must contribute is $50,000. So it's best to check with your employer first.

The government limits the amount you can contribute to your super each year without paying extra tax. These limits are called contribution caps which are in place for both concessional (before-tax) and non-concessional (after-tax).

There is an annual cap of $25,000 in place for concessional contributions. However, unused cap amounts since 2018/19 can be carried forward for up to five years. To use an unused cap amount your total superannuation balance must be under $500,000 at the end of the previous financial year.

For example, if you contributed $20,000 in 2018/19, and $20,000 in 2019/20, you’ll have $10,000 in ‘unused’ contributions that you could contribute in 2020/21 in addition to your annual cap of $25,000, providing your total superannuation balance as at 30 June 2020 was under $500,000. You can carry forward any unused amounts for rolling five-year periods.

This cap is inclusive of the 9.5% super guarantee from your employer. It’s also a combined total across all funds you might have, which is important to keep in mind if you’re contributing to more than one super account.

If your contributions exceed the cap, this amount will be considered part of your assessable income and taxed at your marginal tax rate (plus an excess concessional contributions charge).

The Australian Taxation Office will give you the opportunity to apply for a refund of up to 85% of the excess contributions and you’ll also receive a 15% tax offset in your tax return.

Before adding to your super with your own money, consider:        

  • What are your broader financial goals, including any debts you might have?
  • How much do you realistically need today, and how much can you afford to put away?
  • Do you have any current benefits with your employer? When you salary sacrifice, you change your salary, which might affect benefits you have tied to your salary ie holiday loading and overtime. It’s a good idea to check in with your employer

As part of your membership, you can receive simple financial advice on matters related to your First State Super account over-the-phone or face-to-face at no extra cost.

Book your appointment or call us on 1300 650 873 from Monday to Friday, 8:30am – 6:00pm. (AEST/AEDT).

How to set-up salary sacrifice

There are two quick and easy ways to set-up salary sacrifice: