Salary sacrificing into super
Salary sacrificing to make additional contributions to your superannuation fund can help grow your superannuation balance for a better financial position at retirement.
Before making a salary sacrifice arrangement, you should explore the potential benefits and your financial goals to ensure it’s the right fit for your circumstances.
Consult a licenced financial planner for advice before you make any decisions about salary sacrificing into super.
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What is salary sacrificing?
Salary sacrificing is an agreement between you and your employer to receive less income before tax in return for benefits of a similar value paid for by your employer.
Depending on the industry you work in, benefits could include:
- Car payments
- Mortgage payments
- Tools
- Protective clothing
- Super contributions
Most employers offer salary sacrifice to super for their employees, meaning you could choose to have part of your pre-tax income paid into your super fund in addition to your super guarantee (SG) entitlement (11.5% for 2024-25).
For example, if your income is $80,000 before tax, you could choose to receive $70,000 as taxable income and salary sacrifice $10,000 into your super fund over the income year ($416 per fortnight).
Super contributions made by salary sacrifice are concessional contributions, taxed at 15% instead of at your marginal income tax rate.
The marginal tax rate on employment income exceeding $45,000 is 30%.
So, by salary sacrificing to super in these particular circumstances you could save tax as well as boosting your super savings.
Potential benefits of salary sacrificing into super
Your employer will set up and automatically send the contributions to your super fund. Regular additional payments, especially if you start early, will accelerate the growth of your super fund account balance and make a big difference at retirement.
Lower taxable income may help you pay less tax, stay in a lower tax bracket, reduce the Medicare Levy, or qualify you for certain concessions.
Up to $50,000 of salary sacrifice contributions are eligible to be accessed through the First Home Super Saver Scheme.
Salary sacrificing to super will not reduce the amount of SG contributions your employer pays.
Points to consider before opting to salary sacrifice
Less take-home pay may be challenging if you have a tight budget or immediate financial needs like a mortgage.
If you aren’t using the funds to purchase your first home, you won’t be able to access any of the money added to your super fund until you reach 65 or you retire after age 60, so you will need enough funds outside of super to cope with emergencies or other shorter-term financial issues.
The amount of “concessional” contributions you can add to your super each year is capped ($30,000 for 2024-25): if you go above the cap, contributions will be taxed at your marginal tax rate (less a 15% tax offset).
Concessional contributions include both SG and salary sacrifice contributions, as well as contributions you claim a tax deduction for.
You won’t be able to claim a tax deduction on salary sacrificed super contributions, as you won’t have paid income tax on them.
If you earn under $45,000 a year, salary sacrificing into super might not be as beneficial due to your lower income tax rate.
Consider getting financial planning advice and/or tax advice.
What next?
If you’ve decided salary sacrificing to super is the right choice, you should:
- calculate how much of your income you want to sacrifice;
- talk to your employer about starting a salary sacrifice arrangement; and
- check your payments, both salary sacrifice and SG contributions, are being made correctly.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.