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You can choose to contribute personally to your super in two ways.
This article is about salary sacrifice (before tax) contributions. In it we describe what salary sacrifice is, who is eligible to make salary sacrifice contributions, as well as other important information you need to know before you decide if you would like to make salary sacrifice contributions to your superannuation.
What is salary sacrifice?
Salary sacrifice is an arrangement between you and your employer in which you agree to reduce your gross take home salary and replace it with employer contributions to your superannuation.
Making salary sacrifice contributions means that the contributions are made from your before tax salary rather than from your after tax salary.
You should be aware that for salary sacrifice to be acceptable to the Australian Taxation Office (ATO), any salary sacrifice arrangement with your employer must be prospective. This simply means that you must enter into a salary sacrifice arrangement with your employer that covers salary that is going to be earned in the future, not salary that has been earned in the past.
By making salary sacrifice contributions, your total salary for tax purposes (assessable income) and the amount of tax payable on that salary is lowered. This is because some of your salary is being paid straight into super rather than being received and taxed as income.
Tax rates
Residential Individual Marginal Tax Rates (MTR) 2008/2009
What are the possible effects of using salary sacrifice?
Depending on your individual financial situation and income level, you could expect to:
If I salary sacrifice, how does it affect my take-home pay?
Depending on your level of income, you may receive more in your take-home pay if you salary sacrifice than if you make after tax contributions.
The following example illustrates the effect that salary sacrifice has on your take-home pay and on your contributions.
Example: Salary sacrifice (before tax) contributions compared to after tax contributions to your superannuation.
Salary sacrifice (before tax) contributions
After tax contributions
This example of salary sacrifice results in a $8,875 increase in after tax salary.
Note:
*This does not include payment of the Medicare levy. The amount of Medicare levy you pay depends on whether you have private health insurance. These examples do not include benefits tax or contributions surcharge tax. The calculation also does not take into account the superannuation contributions tax of 15%
You will need to do your own calculations to determine whether or not making salary sacrifice contributions is right for you. You are advised to seek independent, professional, financial advice.
If I make salary sacrifice contributions, will they qualify for the Federal Government’s superannuation co-contribution?
No – salary sacrifice contributions do not count towards qualifying for the Federal Government’s superannuation co-contribution. Only after tax personal contributions made into your superannuation account may count (subject to certain eligibility criteria being met).
If you are eligible for the superannuation co-contribution, you should seek independent, professional, advice before deciding whether to make salary sacrifice or after tax contributions.
Things to do before making a decision
Disclaimer: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in this article is for guidance only and should not be relied upon without obtaining professional advice having regard to your specific circumstances. “Liability limited by a scheme approved under Professional Standards Legislation”
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