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Salary sacrificing is a way of contributing to your super and involves diverting part of your salary into your super fund. Salary sacrificing into your super comes with tax benefits, making it an attractive option for anyone looking to top up their super balance.
This guide will explain how salary sacrificing into your super works, how to set it up and what to consider before going ahead. If salary sacrificing isn’t for you, we’ve also outlined some other ways of contributing to your super.
Salary sacrifice is the process of redirecting a percentage of your salary or wage into something else. You can set up a salary sacrifice agreement with your employer to help pay off a car, your mortgage payments or to top up your super.
Salary sacrifice into your super fund means, come payday, a percentage of your wage will be sent to your super account rather than into your bank account. These are classed as concessional contributions, because the money that’s sent to your super account is diverted before you’re charged any income tax on it. This is the main benefit of salary sacrificing into your super.
You can elect how much of your pre-taxed income you want to send to your super account instead, although limits do apply (we’ve outlined these limits below). If you want to salary sacrifice into your super this is something you can arrange directly with your employer instead of with your super fund.
Salary sacrificing has many benefits, but there are also a few things to consider before setting it up.
Salary sacrificing is classed as a concessional contribution and there are limits as to how many concessional contributions you can make each year. Your concessional contributions can’t be more than $25,000 p.a., which includes both your salary sacrificed contributions and those made by your employer as part of the super guarantee.
As an example, let’s say you earn $150,000 a year. To meet the 9.5% super guarantee requirement your employer needs to contribute $14,250 to your super a year. This means you can only make up to $10,750 worth of additional pre-tax contributions.
There are four main ways you can contribute to your super.
Salary sacrificing is just one of the many strategies you can use to grow your super balance. To learn about the other ways you can increase your balance, take a look at our guide to growing your superannuation.
*Past performance data is for the period ending December 2020.
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