Salary sacrifice into your super
Salary sacrificing is one of the easiest ways of contributing to your superannuation.
We’re committed to our readers and editorial independence. We don’t compare all products in the market and may receive compensation when we refer you to our partners, but this does not influence our opinions or reviews. Learn more about Finder.
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.
AustralianSuper - Pre-mixed, Balanced Super Fund
Choose from an extensive range of investment options and enjoy discounted rates on select banking products when you join AustralianSuper.
- 2019 Finder Awards Winner: Best Super Fund - Balanced
- Join and consolidate your super with the easy-to-use mobile app
- Australia's largest industry super fund
How salary sacrifice into superannuation works
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 into your super has many benefits
- Pre-tax super contributions. Salary sacrificing is classed as a concessional contribution, meaning it’s part of your pre-tax income. This money will instead be taxed at the reduced super tax rate of 15%, rather than your marginal tax rate which could be as high as 45%.
- Set-and-forget strategy. Salary sacrificing into your super is a great way to make passive contributions to your super. Once you’ve set it up there’s nothing else you need to do – the contributions will automatically be made each time your employer pays you.
- Your employer handles the admin. Your employer will set up your salary sacrifice contributions with your super fund, so there’s not much admin involved for you.
- Benefit from compound returns. By making regular contributions to your super from a young age, you’ll benefit from compounded investment returns.
- No fees. There are no fees charged to make concessional contributions to your super via salary sacrifice.
- Benefits to those earning more than $37,000. Those with a salary above $37,000 stand to benefit the most from salary sacrificing into super. Instead of paying the marginal tax rate of up to 45%, that income will instead only be taxed at 15%.
What to consider before salary sacrificing into super
Salary sacrificing has many benefits, but there are also a few things to consider before setting it up.
- It’s part of the super guarantee. Your employer is required to pay you the super guarantee, which is currently set at 9.5% of your salary. If you elect to salary sacrifice part of your wage into your super, this is counted as part of the super guarantee from your employer rather than another contribution on top of this, unless you negotiate otherwise.
- Less money at payday. If you elect to send a portion of your salary to your super you’ll end up with less money in your bank account come payday.
- You can’t access the money. Once you’ve sent the money to your super fund, you can’t access this money until you retire or reach your preservation age. So it’s important to ensure you won’t need the money to meet your financial obligations, such as rent, bills or in the event of an emergency.
- Limits apply. There are limits as to how much you can contribute to your super, which are outlined below.
- Not worth it if you earn below $37,000. If you earn below $37,000 your income is only taxed at 19%, so it might not be worth salary sacrificing as you’d only be taxed 4% less.
There are limits to how much you can salary sacrifice into super
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.
How else can I make contributions to my superannuation?
There are four main ways you can contribute to your super.
- Employer contributions. This is the main source of money paid into an individual’s superannuation account. According to the superannuation guarantee, an employer must pay at least 9.5% of an employee’s gross salary into their super account every quarter.
- Concessional contributions. You can arrange for your employer to pay some of your pre-tax salary into your super fund as an additional contribution, known as salary sacrifice. But remember, your contribution allowance is capped at a maximum of $25,000 a year including all your employer and concessional contributions.
- Non-concessional contributions. A non-concessional contribution is one you make from your post-tax salary. This means you’ve already received the money into your bank account and paid the full tax rate. The cap for these contributions is currently $100,000 a year.
- Government contributions. If you earn below $36,813 you may be eligible for the government super co-contribution. This means that if you choose to make non-concessional (post-tax) contributions, the government will add $0.50 for each dollar you deposit up to $500.
More tips to grow 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.
Compare super funds
*Past performance data is for the period ending June 2020.
More guides on Finder
How Budget 2020 will affect you
The complete guide to how tax changes and new regulations will hit your wallet.
Individual Income tax rates in Australia
Find the latest income tax rates set by the ATO
Child Care Super | Performance, features and fees
Child Care Super is a super fund designed for women, open for all Australians to join.
Local Government Super | Performance, features and fees
Local Government Super is an industry fund with more than 85,000 members that's open to all Australians.
Podcast: does superannuation need a makeover?
Does superannuation need a makeover? Senator Andrew Bragg discusses his new book Bad Egg: How to Fix Super.
Here are 6 ways to invest $1,000 in 2020
SPONSORED: Should you buy shares, top up your super or keep your money in a bank account?
How to get your super back on track if you made an early withdrawal
Did you need to dip into your super early due to loss of income? Here's how to help your balance recover and how long it'll take.
What does the share market rally mean for your super?
Super funds are clawing their way back towards positive returns, but some are doing better than others.
Podcast: Tax time tips for EOFY 2020
Finder experts explain how to claim home office expenses on your 2020 tax return, tips for new investors and how to get the most out of the EOFY sales in 2020.
Coronavirus: How to lodge your tax return this year
Learn about the extra tax deductions you can claim due to COVID-19 and how to properly declare your JobSeeker, JobKeeper or redundancy payments.
Ask an Expert