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Super salary sacrificing is a way of contributing to your super and involves sending part of your pre-taxed income into your super fund instead of your bank account. Salary sacrificing into your super fund from your pre-taxed income ultimately reduces the amount of tax you pay, making it an attractive option for anyone looking to top up their super balance.
This guide will explain how super salary sacrificing 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 (more on this later!), 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).
Salary sacrificing has many benefits, but there are also a few things to consider before setting it up.
There's no limit on how much your can choose to salary sacrifice into your super. However, as salary sacrificing is classed as a concessional contribution, there are limits as to how many concessional contributions you can make each year. Concessional contributions are contributions made from your pre-tax income (not the voluntary contributions you choose to make directly from your bank account). Your concessional contributions can’t be more than $27,500 per year, 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 10% super guarantee requirement your employer needs to contribute $15,000 to your super a year. This means you can only make up to $12,500 worth of additional pre-tax contributions.
If you salary sacrifice more than your annual concessional contributions cap, the extra amount won't be taxed at the reduced super tax rate.
Salary sacrificing small amounts into your super can add up to a big amount over time. Take a look at some of the below examples, which are based on projections using Industry Super Australia's salary sacrifice calculator.
Let's pretend....
You're 30 years old, earning $80,000 a year and currently have a super balance of $50,000. If you added just $1000 extra into your super each year (or around $19 a week), you could retire with an additional $67,300 in your super. If you upped your contributions to $2000 a year (or around $38 a week), you could retire with an additional $134,500.
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. Simply ask your employer, or the accounts team who manages your salary payments, if they can start a salary sacrifice arrangeemnt for you.
Make sure you check the following:
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.
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