Salary sacrifice

In addition to the compulsory super (SG) that your employer must pay, you can choose to make extra contributions out of your gross (before-tax) salary.

Salary sacrifice is an arrangement you make with your employer to forgoe an amount of salary in favour of superannuation contributions which are deducted from your before-tax salary.

What are the benefits?

A salary sacrifice arrangement has the effect of lowering your taxable salary.The amount contributed towards your super will be treated as employer contributions and will be taxed concessionally at 15%. The salary you have left is reduced so you pay less income tax instead of paying your marginal tax rate of up to 46.5%.

Regularly contributing a small amount to your super now, can make a big difference to when you retire. An extra $20 a week into your super from age 35 could add up to $49,755 to your super savings by age 65.*

* Assumptions: Based on after-tax contributions of $20 per week, indexed to inflation at 3% p.a. with a 7% p.a. rate of return compounding weekly, adjusted for inflation at 3% p.a. Figures are shown in today’s dollars. Refer to the ATO website for the latest tax rates.

Click here to see a case study of how you can benefit from a salary sacrifice arrangement.

How do I make extra contributions?

Speak to your employer to arrange before-tax contributions to be made directly into your Cbus account. It’s that simple.

What you should know about Salary Sacrifice

Protecting your existing benefits

You should check that making extra contributions does not affect any existing salary based entitlements you may have. It is important to note that employers may base their SG contributions on your reduced salary amount. It's a good idea to confirm with them before you decide to salary sacrifice.

Low income earners

If you earn below $25,000 salary sacrificing may not have any tax advantages for you. The tax rate on your salary would be similar to the tax on your superannuation contributions.

Deductions

Salary sacrifice arrangements are included as reportable superannuation contributions which count towards certain income tests used for working out benefits, concessions and offsets. You cannot claim deductions or tax offsets for salary sacrifice contributions. This is because your employer is considered to have made the contribution. You also cannot claim a deduction for the cost of any administration fees paid to your employer to enter into and maintain a salary sacrifice arrangement.

Fringe benefits tax

A salary sacrifice contribution is not a fringe benefit and is not subject to fringe benefits tax. It should not be reported on your PAYG payment summary.

Are there any restrictions when making a salary sacrifice arrangement?

There are some restrictions:

Your employer may place limitations on the amount of salary sacrifice they will allow
You can only salary sacrifice future benefits
You cannot salary sacrifice award payments
You cannot decide to put bonus or commission payments into superannuation as salary sacrifice after they have been earned
There is a limit of $25,000 per year that you may receive as Concessional Contributions (employer Superannuation Guarantee, salary sacrifice and other employer contributions). All Concessional Contributions that exceed this limit will be taxed at the highest rate of 46.5%
Members aged 50 years or over are entitled to a higher limit of $50,000 pa until 1 July 2012, when the limit will decrease further to $25,000. If you exceed this limit the contributions will be taxed at the highest marginal tax rate of 46.5%. The Government has announced changes that if passed by parliament will permanently increase the concessional contribution cap to $50,000 for individuals who have total super balances below $500,000 and are over 50 years of age.

More information

As well as the important information above, comprehensive information on salary sacrifice is available from the Australian Taxation Office (ATO) website or by calling them on 13 10 20.