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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.
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.
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:
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.
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.
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
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