What is salary sacrifice?

Pre-tax super contributions occur when an employer pays part of your pre-tax pay into your super account, this is called salary sacrifice or salary packaging.

You are able to make super contributions of $25,000 per year to your super fund through salary sacrifice. This sum includes your employer super guarantee contributions of approximately 9.5% of your gross salary per year, allowing for a tax deduction to be claimed reducing the tax rate to 15%.

You are also able to make non-concessional super contribution of up to $100,000 per year after tax. This is money taken from your savings or income and then transferred to your super fund where they will not be taxed again. If you do end up being taxed higher than you should due to your original, higher income being assessed you will receive a refund.

If you are below the age of 65 you could be eligible to make contributions of up to $300,000 per annum, known as the bring forward arrangement. If you are eligible to make these donations, larger than the annual limit, you can automatically access future year caps.

ATO superannuation bring forward table

2017-2018 bring forward, Source: ATO

Even if you are earning less than $52,697 per year before tax you can still make pre-tax contributions to your super. The government will then determine if you are eligible for a co-contribution equivalent to what you put in. Your eligibility will be determined when you lodge your tax return and the government will directly pay it to your super fund.

“If you are looking at ways to reduce the tax you pay per year and boost your super balance, I cannot think of a better way?”

Tyron Mitchell

Why choose to salary sacrifice?

Concessional contributions (deposits into super) are taxed at 15% which is lower than the marginal tax rate for most people. If you do not choose to salary sacrifice this money will be taxed at 32.5% or higher depending on your annual salary. These contributions are beneficial as you will be paying less tax while increasing your retirement savings.

If you choose to salary sacrifice pre-tax your assessible income will be decreased resulting in less tax being paid.

By choosing to salary sacrifice while working you will end up with more money in your super fund when you choose to retire. This is beneficial as once you reach the age of 60 your super balance becomes tax free.

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