Salary Sacrifice and Superannuation

If you are working as an employee, you have probably been offered the option to salary sacrifice to boost your superannuation. But what exactly is salary sacrifice and is it something you should be pursuing in relation to boosting your superannuation balance?

Additionally, what, if any, tax implications will this then have for you at the end of the financial year? Let’s find out.  

salary sacrifice

In this article we will discuss: 

  • What is salary sacrificing? 
  • Benefits of salary sacrifice and superannuation. 
  • Who can salary sacrifice in Australia 
  • Tax implications.  
  • Where to seek advice about your super.  

What Is Salary Sacrifice? 

Salary sacrifice with regards to superannuation is when you elect to have your employer pay some of your pre-tax income to your nominated super account. This amount is set by you and paid in addition to the 9.5% of your earnings paid under the Superannuation Guarantee.   

In some organisations, an incentive may be offered to you by your employer if you make voluntary contributions. For example, if you contribute 3% with salary sacrificing, your employer may increase the super paid to you by 1%. This can quickly add up to more money in your superannuation account. 

Why Opt-In for Salary Sacrifice?   

There are numerous benefits of salary sacrifice, such as: 

  • It’s a fast and easy way to boost your savings for retirement. It requires no special action by you to achieve as it is all handled by your employer’s payroll system. 
  • You pay less tax both on the sacrificed amount and your take-home pay as your yearly salary is less.  
  • Investment growth inside your super is also taxed at a lower amount than most investment earnings outside of super. We will go further into the tax implications below.  

By far the biggest benefit is that you are saving towards a better retirement. The fact that super earns compounding interest only heightens the value of these contributions. As you add more, you earn more and your higher balance earns you more in interest again, meaning your super is working hard for you throughout your working life. 

Who Can Salary Sacrifice? 

Anyone! The beauty of salary sacrifice is that anyone can opt to make additional contributions through their employer’s payroll. It can save you money while also earning you money. Though it is best suited to those whose marginal tax rate is over 15% or middle to higher-income earners, you can salary sacrifice to super at any time.   

salary sacrifice superannuation

Tax Implications and Watch Points for Salary Sacrifice 

For those in middle to higher income brackets paying anywhere between 22% to 34% tax on their income, salary sacrifice offers a lower rate at 15%. Contributions will be taxed at this rate and your overall take-home pay is less, meaning you may fall into a lower tax bracket at tax time.  Salary sacrifice tax rates could be a better option for you financially. 

Take this example from MoneyMag: 

“If you earn $100,000pa and decide to salary sacrifice $10,000 into your super fund, while your super fund will be credited with $8500, your take-home pay will not be reduced by $10,000 but instead by the after-tax amount of $6300.” 

The tax benefits associated with salary sacrifice and super are capped at $25,000 annually. This is referred to as the concessional contribution cap and takes into account both your and your employer’s contributions. The reduced tax is only available on amounts up to this cap and must be from your pre-tax income.  

You can of course make additional non-concessional contributions, which is when you pay from your already taxed income. Depending on your annual salary, the government may also match some of these contributions to help you boost your super balance further.  

While saving for your retirement is always a great idea, it is important to understand that you will not be able to access these funds til you reach the set preservation age. Should you pursue a withdrawal prior to this, there will be significant financial implications.

Ensuring you can survive on your reduced take-home pay and manage in the years preceding your retirement is an important consideration

“If you earn $100,000pa and decide to salary sacrifice $10,000 into your super fund, while your super fund will be credited with $8500, your take-home pay will not be reduced by $10,000 but instead by the after-tax amount of $6300.” 

Collins Mann Can Help with Salary Sacrifice

At Collins Mann we specialise in helping you map your financial future, creating achievable plans for the short, medium and longer term. We believe in choice without compromise during retirement and our goal is to have you secure your financial future through considered financial planning.  

Salary sacrifice in Australia is just one avenue towards a comfortable retirement. Should you be interested in investing through a self-managed super fund (SMSF), wealth management and growth strategies or effective tax strategies as a high-income earner, we can help.   

Contact Collins Mann today to learn about salary sacrifice and other retirement strategies, secure your financial future on 07 3251 3200.  


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