What is salary sacrificing into super in Australia?
Salary sacrificing into super involves your employer paying a portion of your pre-tax salary directly into your super fund. This reduces your taxable income, as these contributions are taxed at a lower super rate (15% for most people) within the fund.
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How it works in practice
Understanding Salary Sacrificing
Salary sacrificing, also known as salary packaging, is an arrangement between you and your employer to pay a portion of your pre-tax salary into your superannuation fund. Instead of receiving this money as part of your ordinary income (which would be taxed at your marginal income tax rate), it goes directly into your super account as a concessional contribution.
How It Works
Because the money is contributed before income tax is calculated, it reduces your taxable income. These contributions are then taxed at a flat rate of 15% within your super fund for most individuals, which is often significantly lower than your marginal income tax rate. This strategy can help you boost your retirement savings while potentially reducing the amount of income tax you pay. It effectively allows you to convert part of your income from a higher personal tax rate to the concessional super tax rate.
Important exceptions
This strategy is subject to annual concessional contribution caps (currently $27,500 for most). Exceeding this cap can lead to additional tax.
Your employer must agree to the arrangement, and it must be set up correctly as a pre-tax deduction. You should ensure it's a new arrangement and doesn't replace your employer's mandatory super guarantee contributions. Not all employers offer salary sacrificing. It may not be beneficial for low-income earners whose marginal tax rate is already 15% or less.
What you should do now
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Discuss salary sacrificing with your employer to see if they offer this option and understand their process.
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Review your current income and superannuation contribution levels to determine your available concessional cap.
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Agree on the specific amount or percentage of your pre-tax salary you wish to contribute to super.
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Complete any necessary paperwork with your employer to formally set up the salary sacrifice arrangement.
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Regularly monitor your super contributions through your super fund and ATO MyGov account to ensure compliance with caps.
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