Changes to superannuation salary sacrificing: What it means for you
The new super salary sacrificing legislation that came into action from 1 January 2020 is good news for workers.
Do you salary sacrifice some of your pay into your superannuation? If you don't, are you thinking about doing it this year? If you answered yes to either of these, the new legislation that came into effect from 1 January is great news for you.
Salary sacrificing is the process of directing some of your pre-tax income into your super instead of your bank account. Because it's directed into your super before any income tax is withheld, that money is taxed at the lower super tax rate of 15% instead of your standard income tax rate (this could be as high as 45%, depending on what you earn).
As well as topping up your super and paying less tax on the money you contribute via salary sacrificing, this process also lowers your overall taxable income at the end of the financial year.
What was the previous legislation?
Your employer is required to pay a percentage of your annual earnings as a contribution towards your super. This is known as the superannuation guarantee, and it's currently set at 9.5%.
Previously, if you chose to salary sacrifice a portion of your pay into your super, this amount could be included in the super guarantee that your employer is legally required to pay.
So if you were already salary sacrificing 9.5% of your annual earnings into your super via salary sacrifice, your employer wasn't legally required to pay any more on top of this. If you were salary sacrificing 5% of your pay into your super, your employer was only required to make up the additional 4.5% contribution.
What is the new superannuation legislation?
As of 1 January 2020, any money that you personally contribute to super via salary sacrificing cannot be counted towards the super guarantee that your employee is required to pay. This means that your employer must pay 9.5% of your gross annual income (that is the amount you earn before you salary sacrifice anything) as a contribution to your super.
This is a win for employees. If your employer was previously counting your salary sacrifice contributions as part of the compulsory super guarantee they're required to pay, you'll see more money added to your super this year.
However, a lot of employers were already paying the compulsory super guarantee on top of any salary sacrifice contributions made by employees (which is a good thing). So if this was the case for you, there won't be any change.
Either way, if you're salary sacrificing money into your super or if you're planning to start this year, it's important to double-check with your employer to ensure you're getting the full benefit you're entitled to.
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