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There are a variety of options available to you when it comes to contributing to your super, in addition to the guaranteed payments your employer makes for you, on your behalf. Salary sacrificing is one of the options you can consider to increase your superannuation contributions that may help grow your retirement savings. 

What is salary sacrificing? 

Salary sacrificing is an arrangement between you and your employer where you agree to forego some of your take home pay, in return for increasing your superannuation contributions.  

As an example, if a person earns $100,000 before tax and their employer agrees that the person can salary sacrifice $15,000 into their superannuation, their salary is effectively reduced to $85,000 in take home income and the other $15,000 will be free from Fringe Benefits Tax and paid into their superannuation account. This effectively means the $15,000 the person pays into their super fund is only taxed at a 15% rate ($2,250) as opposed to the marginal tax rate for someone earning $100,000 which is 32.5% ($4,875). In this example, the person would effectively be $2,625 better off.

What can be salary sacrificed? 

There are different scenarios where salary sacrificing may be considered to purchase items or pay money into their super.  These are outlined below but it’s a good idea to talk to your employer to see if they offer these options for you, and a financial adviser who can help determine if this is a good strategy for your personal circumstances:

  • Fringe Benefits Tax salary sacrifice – where you may be paying for a motor vehicle, school or childcare costs, or loan repayments, your employer will have to pay the Fringe Benefits Tax on your behalf.  
  • Exempt benefits – some items are exempt from Fringe Benefits Tax such as work-related items.  These may include laptops, tablets, software, tools or work related clothing. 
  • Superannuation – salary sacrificed contributions to super are free from Fringe Benefits Tax as long as contributions are paid into a complying super fund. This can be an option to increase your super balance and save more money for retirement but there are limits that you will need to be aware of. Currently, the annual limit you can pay into your super account from your pre-tax salary is $27,500 and it’s important to note that this includes your superannuation guarantee payments from your employer (currently 11% of your salary for most people).  For more information on contribution limits, please refer to the Australian Taxation Office website.

If you have reached the $27,500 limit in any given year, you can still make contributions to your super account, but these need to be made from your after-tax salary.  This is because the government only allow contributions with tax advantages up to this $27,500 limit.  If you exceed the $27,500 contribution cap in any given year, your excess contributions will either be returned to you, or you will be charged tax at your marginal tax rate.  

You can contribute up to $110,000 per annum from your post-tax salary to your superannuation, and you can find more information via the MoneySmart website.  

Does salary sacrificing work for everyone? 

Each employer will have different salary sacrifice arrangements for their employees, so it’s best to check with your place of work to see what’s available for you.  

You should research and seek professional advice to help you decide if salary sacrificing is an arrangement that may be of financial benefit to you, as it’s not financially beneficial for everyone.  

Conclusion 

If you’re in a position to make extra contributions to your superannuation, salary sacrificing is one option available for you.  Any additional contributions you make may have a positive impact on your retirement savings but before making additional contributions, make sure you’re aware of your options and your contribution limits.  It is a good idea for you to reach out to a financial adviser who can make recommendations based on your personal situation.  
 

Sources:

Pre-tax contribution limits - Concessional contributions cap | Australian Taxation Office (ato.gov.au) 
Post-tax contribution limits - Super contributions - Moneysmart.gov.au 

 

What you need to know

Any advice on this website is provided by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life), and is general advice and does not take into account your objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs, as well as the relevant product disclosure statement and/or policy document, available from Resolution Life at resolutionlife.com.au or by calling 133 731, before making a decision on whether to acquire, or continue to hold, the product. 

The Target Market Determinations (TMDs) for our financial products (where applicable) can be found at Target Market Determinations (TMDs). The TMDs describe the key features and attributes of an applicable product that affect whether it is likely to be consistent with the objectives, financial situation and needs of consumers in the target market.

While every effort has been made to ensure the accuracy of the information, it is not guaranteed. Resolution Life do not actively monitor breach of superannuation contribution caps. You should keep track of the contributions made to your account in respect of the caps applicable to you. You should obtain professional advice before acting on the information contained in this communication. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Resolution Life is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

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