Salary sacrifice – a smart before-tax contribution
Salary sacrificing your super contributions involves paying some of your before-tax salary (that’s your income before any income tax has been calculated or deducted) into your super account. In essence, you’re putting some of your income away now, so that you could pay yourself more in retirement.
You’ll need to check with your employer first to ensure they can accommodate salary sacrifice contributions because they are arranged through your employer’s payroll team. If they can, you can salary sacrifice from your future regular salary, bonuses, or allowances.
Salary sacrifice can be one of the most tax-effective ways to add to your super. Why?
Salary sacrifice can lower your taxable income
Salary sacrifice contributions are taken out of your salary before income tax is calculated, so they have the effect of lowering your taxable income. The contribution comes out first, and then income tax is calculated based on what’s left of your salary. The upshot? You could pay less tax.
Pay less tax on the money you add to your super
Salary sacrifice contributions are generally taxed at 15%. That’s much lower than up to 47% (including the Medicare levy), which is the tax rate that may apply if you take the money as income, depending on what you earn.
Will salary sacrifice work for me?
Salary sacrifice contributions receive specific tax treatment, and as a result, this type of contribution tends to be better suited to those who earn at least $23,226 a year with a marginal tax rate of 19% or more.
Those earning less than that amount might benefit more from making after-tax personal contributions in order to take advantage of the government co-contribution. It's probably best to seek financial advice on which type of contribution will suit you.
For higher income earners, it may be worth having a chat to a financial planner as salary sacrificing may take you over the before-tax contribution cap depending on your income. Do you earn over $250,000 per year? If you do, your before-tax contributions will generally be taxed at 30%.
Decide how muchDecide how much
Decide how much you want to salary sacrifice. You can salary sacrifice from your future regular salary, bonuses or allowances.
You can use our online tool - Beeline, to work out the right amount for you. Beeline takes the guesswork out of deciding what’s best for you and your super, and shows you simple and effective ways to set and achieve your retirement planning goals.
For professional financial advice about your super, you can also speak to one of our planners. It’s straightforward. It’s tailored to you and your super, and it’s usually at no extra charge for members.
Know your limitsKnow your limits
Before you start making additional contributions, it's vital to review all of the super contributions you make to ensure you stay within the caps and aren't charged additional interest and tax.
How much is the cap?
In the 2020/21 financial year, you can add up to $25,000 (plus any prior year unused cap) in before-tax contributions to your super account – all at the low tax rate of 15% . If your adjusted income exceeds $250,000 per year, your contributions are generally taxed at an effective rate of 30%.
You can find out more about contribution caps in our Member Guide (PDF).
Set up salary sacrificeSet up salary sacrifice
Download and complete the Make a personal and/or salary sacrifice contributions through your employer form. Give it to your HR or payroll manager and they will start making payments into your account.
Do you work for DET?
If you’re a school-based employee or principal employed by the Department of Education and Training (DET), the steps are the same, only you’ll need to complete a Salary Packaging form
Don't sit there wondering - our team members are here to help!