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A smart way to grow your super and save on tax

Salary sacrifice is an arrangement between you and your employer to pay some of your before-tax salary (that’s your income before any income tax has been calculated or deducted) into your super account.

So, while these contributions may help to grow your super balance, this could also lower your taxable income and tax bill. How? Before-tax super contributions are generally taxed at only 15%, while your personal marginal income tax rate can be as high as 45% (not including Medicare levy). Paying more of your salary into super also lowers your taxable income for the financial year. Let’s crack that winning grin!

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.

Boost your super the champions way

Salary sacrifice can be one of the most tax-effective ways to add to your super.

Everyone’s situation is different, and we can’t tell you whether you should add to your balance as we haven't considered your financial situation. So, before making additional contributions, you should consider your own personal circumstances and if this is the right thing for you.

Start salary sacrificing

How salary sacrifice works

How it works

Before your personal income tax is deducted from your salary, your employer pays an agreed amount into your account. This can be done regularly or occasionally depending on what suits you.

Your super can grow faster

Super investments can grow faster in a tax-effective environment, so each additional contribution may make a big difference in the long run thanks to the power of compound returns.

You could pay less tax

Your employer pays your extra contribution directly into your super before your personal income tax is deducted from your salary. As more of your salary is paid into your super (and is generally taxed at 15%) this could lower your taxable income.

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%.

The example below shows a comparison of before and after-tax contributions to help decide what is right for you.

Comparing before and after-tax contributions

Pat is 35, has an annual income of $65,000 before tax and has surplus funds of $2,080 per year. Pat would like to add this $2,080 surplus to super during the 2021/2022 financial year and on. But should Pat pay this before or after tax? This example shows that by including his tax savings into salary sacrifice, Pat has an additional $665 in their end position.

salary sacrifice table

Assumptions

-Income tax calculation based on 2021/22 rates
-Based on someone age 35 and planning to retire at age 67
-Personal and salary sacrifice contributions remain unchanged in real terms over the next 32 years
-Amounts stated in today’s dollars, deflated using AWOTE of 3% p.a.
-Investment returns are based on the VicSuper MySuper option, assumed to be CPI + 3.75% p.a. CPI is assumed to be 2.5% p.a.
Start salary sacrificing today
  • Know your contribution 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 2021/22 financial year, you can add up to $27,500 (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).

  • Is making additional contributions right for you?

    Before adding to your super with your own money, consider:

    • What are your broader financial goals?
    • How much do you realistically need today, and how much can you afford to put away?

    Super has rules around when and how you can access your money, and you need to take that into account before making a contribution.

    If you’re not going to access your super for several decades but you’re looking to buy a house soon, personal contributions may not necessarily be the right option for you.

    Anyone can make a personal contribution, but once you reach age 67, you’ll need to satisfy a work test to show you worked 40 hours over a consecutive 30-day period in the financial year you make the contribution. If you meet the work test, you can also make contributions in the following year1

    1As long as your total superannuation balance is under $300,000 under the work test exemption rules from 1 July 2019. ↩ Also, the information in this document may be impacted by measures announced in the May 2021 Federal Budget, some of which have not been passed at the time of publication.
  • Set up salary sacrifice

    Do you work for the Department of Education?
    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 

    Download form    DET form

You could achieve a personal best

The following case studies show the long-term benefits of boosting your super due to compounding returns, at different age and salary ranges.

  • Age 25 -38, salary of $50K - $85K

    Case Study: Lulu benefits from contributing to super

    Here's how it works:
    Lulu is 34 years old, has $54,000 in super and earns $55,600 per year. She starts adding to her super through salary sacrifice as follows:

    • $100 per fortnight until age 52
    • Then $150 per fortnight until age 57
    • Finally, Lulu makes contributions of $200 per fortnight until retiring at age 67
     salary sacrifice 161k 

    With every contribution that they make into super, their salary is taxed on the amount remaining after their contribution is removed. So, if they earn $55,600 per year and add $100 per fortnight into super (or $2,600 per year), their taxable income for the year is considered $53,000. The tax savings are $573.

    Everyone’s situation is different, and we can’t tell you whether you should add to your balance as we haven't considered your financial situation. So, before making additional contributions, you should consider your own personal circumstances and if this is the right thing for you.

    Assumptions

    -Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.0% p.a
    -Based on someone age 34 and planning to retire at age 67;
    -Based on SG of 10% for 2021/22 and then each financial year by 0.5% until it reaches 12% on 1 July 2025 (where it will remain at 12%)
    -Based on 2021/22 income tax rates.
    -Investment returns are based on the Vic Super MySuper option, assumed to be CPI + 3.75% p.a.
    -Salary Sacrifice contributions increased in line with annual salary increase of 3.0% p.a. and assumes concessional contribution caps are indexed in line with AWOTE;
    -No admin fees and earnings tax are modelled as investment returns are assumed to be net of fees and tax;
    -Insurance premium is assumed to be $380 p.a., indexed with AWOTE of 3% p.a.;
    -This example is for illustrative purposes only and is not intended to provide a forecast or guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may be negative and may vary materially. If investment returns/inflation are higher/lower, final balances will differ.
  • Age 39 -49, salary of $85K - $115K

    Case Study: Jacob benefits from contributing to super

    Here's how it works:
    Jacob is 42 years old, has $90,000 in super and earns $95,000 per year. Jacob decides to start adding to his super through salary sacrifice as follows:

    • $100 per fortnight until age 52, then
    • $150 per fortnight until age 57.
    • Finally, he makes contributions of $500 per fortnight until retiring at age 67 with a big difference in his super!
    salary sacrifice 195k 

    With every contribution that they make into super, their salary is taxed on the amount remaining after their contribution is removed. So if they earn $95,000 per year and add $100 per fortnight into super (or $2,600 per year), their taxable income for the year is considered $92,400. The tax savings are $585.

    Everyone’s situation is different, and we can’t tell you whether you should add to your balance as we haven't considered your financial situation. So, before making additional contributions, you should consider your own personal circumstances and if this is the right thing for you.

    Assumptions

    -Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.0% p.a
    -Based on someone age 34 and planning to retire at age 67;
    -Based on SG of 10% for 2021/22 and then each financial year by 0.5% until it reaches 12% on 1 July 2025 (where it will remain at 12%)
    -Based on 2021/22 income tax rates.
    -Investment returns are based on the Vic Super MySuper option, assumed to be CPI + 3.75% p.a.
    -Salary Sacrifice contributions increased in line with annual salary increase of 3.0% p.a. and assumes concessional contribution caps are indexed in line with AWOTE;
    -No admin fees and earnings tax are modelled as investment returns are assumed to be net of fees and tax;
    -Insurance premium is assumed to be $380 p.a., indexed with AWOTE of 3% p.a.;
    -This example is for illustrative purposes only and is not intended to provide a forecast or guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may be negative and may vary materially. If investment returns/inflation are higher/lower, final balances will differ.
  • Age 50 -59, salary of $115K+

    Case Study: Georgia benefits from contributing to super

    Here's how it works:
    Georgia is 50 years old, has $170,000 in super and earns $115,000 per year. She decides to start adding to her super through salary sacrifice as follows:

    • $150 per fortnight until age 55, then
    • $250 per fortnight until age 60.
    • Finally, she makes contributions of $500 per fortnight until retiring at age 67 with a big difference in her super
    salary sacrifice 150k 

    With every contribution that they make into super, their salary is taxed on the amount remaining after their contribution is removed. So if they earn $115,000 per year and add $150 per fortnight into super (or $3,900 per year), their taxable income for the year is considered $111,100. The tax savings are $878.

    Everyone’s situation is different, and we can’t tell you whether you should add to your balance as we haven't considered your financial situation. So, before making additional contributions, you should consider your own personal circumstances and if this is the right thing for you.

    Assumptions

    -Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.0% p.a
    -Based on someone age 34 and planning to retire at age 67;
    -Based on SG of 10% for 2021/22 and then each financial year by 0.5% until it reaches 12% on 1 July 2025 (where it will remain at 12%)
    -Based on 2021/22 income tax rates.
    -Investment returns are based on the Vic Super MySuper option, assumed to be CPI + 3.75% p.a.
    -Salary Sacrifice contributions increased in line with annual salary increase of 3.0% p.a. and assumes concessional contribution caps are indexed in line with AWOTE;
    -No admin fees and earnings tax are modelled as investment returns are assumed to be net of fees and tax;
    -Insurance premium is assumed to be $380 p.a., indexed with AWOTE of 3% p.a.;
    -This example is for illustrative purposes only and is not intended to provide a forecast or guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may be negative and may vary materially. If investment returns/inflation are higher/lower, final balances will differ.
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