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Seven things you need to know about salary sacrificing into super

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Your super can receive a significant boost when you pay less tax before making additional contributions. Salary sacrificing boosts your super in a way that costs you less than the benefit - and it's an option open to most of us when we want to build our super quickly and effectively.

1. What is salary sacrificing?

Salary sacrificing for super involves contributing pre-tax dollars from your salary into your superannuation account. Your employer is legally obliged to contribute 9.5% of your salary into your super and you are able to contribute  extra - up to $25,000 in concessional contributions (pre-tax) and $100,000 in non-concessional contributions (after tax).

salary sacrifice into super

This means if you're earning less than $263,000, you have capacity to contribute additional funds to reach the $25,000 concessional cap; however, you should make sure you know exactly how much more you can put in before reaching the threshold as you might otherwise be heavily penalised.

You may choose to increase the percentage of your salary sacrificed into super, or you may choose to sacrifice a lump sum payment from your pay as a one-off or occasional sacrifice.

Some employers offer an opt-out contribution scheme where each employee is putting an extra, say 3%, into super unless they elect not to.  However, it is more typical for people to opt into extra contributions.

2. Can anyone salary sacrifice into super?

Anyone can salary sacrifice into super - it is an arrangement you must make with your employer. Putting some of your pre-tax income into super has benefits for you as your super fund will tax these contributions at 15% - the same as your employer's contributions - and for most people this will be lower than their marginal tax rate.

If you earn $100,000pa and decide to salary sacrifice $10,000 into your super fund, while your super fund will be credited with $8500, your take-home pay will not be reduced by $10,000 but instead by the after-tax amount of $6300.

3. Who is salary sacrificing best suited to?

Salary sacrificing is best suited to anyone whose marginal tax rate is over 15%. It is also suited to people wanting to build their super balance quickly - for example, people who have been out of the workforce for extended periods, or people close to retirement.

There is also a way of salary sacrificing while drawing down on your super balance which is a transition to retirement strategy.

4. What is the difference between concessional and non-concessional super contributions?

Concessional super contributions are contributions to your super for which you have benefited from concessional tax rates. Non-concessional contributions are when you have put money on which you have already been taxed into super.

Both receive concessional tax treatment on earnings inside super.

5. Is there anything to beware of when salary sacrificing?

It's important to ensure you stay within the contribution limits when salary sacrificing into super - and that is making sure your total concessional super contribution is not more than $25,000.

If you salary sacrifice more than the $25,000 concessional super cap you may have to pay your marginal tax rate on the excess amount and an additional excess concessional contributions charge.

6. Can I salary sacrifice whenever I choose?

You can choose to salary sacrifice at any time provided you have agreement with your employer and that you are not exceeding the contribution limit. Many people chose to wait until close to the end of the financial year so they know how much they can afford to sacrifice into super and also, how close they are to reaching the contribution cap.

7. What should I do before salary sacrificing into super?

  • Know how much you are currently contributing to super through your employer's 9.5% super guarantee. Then you will know how much more you are eligible to contribute as concessional.
  • Understand your budget and how much of your salary you can afford to sacrifice.
  • Consider using bonus payments or increases in salary as a painless way to salary sacrifice - this way you manage to live on your previous income and boost your super.

Correction: An earlier version of this story mistakenly said your super fund would be credited with $10,000 if you salary sacrificed $10,000 from a $100,000 salary.

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Julia Newbould was editor-at-large and later managing editor of Money from November 2019 to February 2022. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
Comments
Peter Durman
February 28, 2020 9.57am

Just remember,

once the money is contributed to your Super fund, you do not have access to it till you retire.

There are fees and taxes payable on your contributions, until you retire. These can be hefty in terms of opportunity lost.

Some funds make insurance compulsory, irrespective of need or appropriateness.

Some funds do not allow balance transfer.

Like everything, do your homework. Read there policies, and read reviews from others. Super is complex, and supports many advisors.

DOUGLAS HAMPTON
March 1, 2021 12.08pm

Just to correct your comment about access to super , an older person still working can access their super !!

Margaret Burns
February 29, 2020 7.21pm

You omitted to state that salary sacrifice not possible after age 75. This is discriminatory to senior citizens who still work.We are encouraged to keep working and contributing to taxes but not allowed to protect our financial future by building our super. It is particularly discriminatory to women who start late. building super and have so much time out for child and elder care compared to men. Wish this could change

Ryan Losgets
May 24, 2022 6.26pm

Were the caps to Super contributions not introduced because older workers were contributing all of their income to super then being allowed to take it out the next day (since they qualify) thereby reducing their tax to a mere 15% while every other worker is paying 45%-49%?

Ryan

Alex Alex
December 23, 2020 9.00am

Your example re person earning 100K salary sacrificing 10K is incorrect. The super account will have $8500 after 15% contribution tax, the $10K does not make it into the super account.

Bob Zayuncle
February 20, 2021 4.59pm

That's what I thought too.

Ryan Losgets
May 24, 2022 6.24pm

Hi there

My employer won't allow me to salary sacrifice a bonus after they have informed me of the amount of the bonus. They say that the reason is driven by ATO rules, which require that the election be made prior to an individual being aware of their bonus amount.

Your article states "Consider using bonus payments or increases in salary as a painless way to salary sacrifice - this way you manage to live on your previous income and boost your super." but you cannot do this based on what my employer has told me according to the extremely counter-intuitive rules.

Can you please clarify?

Ryan