Making regular pre-tax contributions is one way that you can build your superannuation balance and potentially save on taxes.

How does salary sacrificing into super work?

Depending on the amount you earn, you may end up paying less tax by requesting your employer to pay a portion of your before-tax salary into your super account, instead of receiving it as take home pay. This is because these pre-tax contributions are taxed at 15% (if you earn below $250,000 a year) or 30% (if you earn $250,000 or more a year), which is often lower than what most people pay on their salaries.

Also known as salary sacrificing or concessional contributions, these pre-tax contributions can also be an effective way to help you increase your super balance.

If you are between 67 and 74 years old, you must fulfil a work test that shows you were employed for at least 40 hours over a consecutive 30-day period before you can make voluntary super contributions. 

What do I need to do to participate in salary sacrificing?

There are a few things you may like to check as part of your decision to salary sacrifice into super:

  • Whether your employer offers salary sacrifice arrangements. If they do, ask them for the forms you need to complete. Alternatively, you can complete our Voluntary Pre-tax Contributions form and submit it to your payroll team.
  • Familiarise yourself with the Contributions factsheet.
  • Calculate how much you can afford to salary sacrifice given that your disposable income will be reduced.
  • Log in to your account to assess whether you are nearing the $25,000 per year concessional super contributions cap. You can find this information under ‘Superannuation balance history’. If you exceed the cap, you may have to pay extra tax. Visit the ATO website to find out more about concessional contributions.

You may also qualify to carry forward any unused concessional contributions cap amounts from 1 July 2018, up to a maximum of five years. Learn more from the ATO website.

Example on how you could potentially be better off with salary sacrificing

The example below shows how Sally can be better off when she salary sacrifices into super.

Sally earns a gross income of $100,000 per year. She decides to salary sacrifice 5% of her gross salary into super. Using the Superannuation Contributions Calculator¹, she calculates the result of making concessional contributions and compares this to the scenario if she had not made the contributions:

 

Annual salary and tax details    
  With 5% salary sacrifice¹ Without salary sacrifice 
Gross income per year  $100,000  $100,000 
Salary sacrifice contribution  -$5,000  -$0 
Taxable income  $95,000  $100,000 
PAYG tax  -$23,617  $25,717 
Annual take home pay $71,383  $74,283 

 

Super contributions    
  With 5% salary sacrifice¹  Without salary sacrifice 
Employer Superannuation Guarantee (SG) contributions $9,500 $9,500
Salary sacrifice contribution $5,000 $0
Contributions tax (15%) -$2,175 -$1,425
Net super contributions $12,325 $8,075

 

Although Sally’s take home pay reduces by $2,900 per year under the salary sacrifice arrangement, she added $5,000 to her retirement savings. Sally also saved $2,100 in PAYG taxes that her employer would have otherwise withheld from her gross salary.

Additionally, even though Sally paid $750 more in taxes on her super contribution, overall, she saved around $1,350 ($2,100-$750) in taxes.

Low income super tax offset (LISTO)

If you earn $37,000 or less a year and you or your employer makes concessional contributions, you may be eligible for a refund of the 15% contribution tax you have paid via a government superannuation payment of up to $500 paid to your super.

If you are eligible and have informed us of your tax file number (TFN), the ATO will make the payment directly to your account.
To check if we have your TFN, log in to your account and navigate to ‘My Account’ followed by ‘My Details’. If you have not informed us of your TFN, please contact us.

Need to speak to someone to see if salary sacrificing is suitable for you?

If you need help to assess if salary sacrificing is suitable for you, you can make an appointment with one of our financial planners.

¹Please click on the Assumptions link on the Superannuation Contributions calculator page for information on how these calculations are derived.

Any advice contained in this document is of a general nature only, and does not take into account your personal objectives, financial situation or needs. Prior to acting on any information in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek independent financial advice if you are unsure of what action to take.