Salary sacrifice

Grow your super and pay less tax

Salary sacrifice is where you make extra before-tax contributions to boost your super. Essentially, you ‘sacrifice’ some of your before-tax pay to add directly to your super account.

Once set up with your employer, the money is taken straight out of your pay before you receive it (similar to an automatic direct debit). This type of contribution is known as a concessional contribution.

Why salary sacrifice?

Save tax

If you earn more than $37,000 per year, your personal income tax rate is most likely between 34.5% and 47% (including Medicare levy), whilst super contributions made with before-tax money are only taxed at 15%. That’s a tax saving of at least 19% if you use some of your gross pay and contribute it to your super.

If you earn less than $37,000 then you might want to consider making after-tax contributions instead, as you may be eligible for the government co-contribution too.

Retire with more money

By salary sacrificing a little amount each pay, you can boost your super considerably without the need to budget for a large annual ‘one-off’ contribution.

This table shows how much money you are likely to retire with if you don’t salary sacrifice at all, compared to how much you could have if you salary sacrifice $30, $75, or $125 per week.

Weekly salary sacrificeDecrease in take-home payAnnual income tax saving

Super balance at age 67 without
salary sacrifice

Super balance at
age 67
with salary sacrifice

Difference in Super
$30 $19.65 $538.00 $573,339$631,503+ $58,164
$75 $48.96 $1,354.00 $573,339$718,749+ $145,410
$125 $80.96 $2,290.00 $573,339$815,758+ $242,419

Assumptions: 30 years of age, $25,000 superannuation invested in MySuper Balanced, $70,000 annual income, 9.50% employer SG contribution increasing to 10% from 1 July 2021, 7% p.a. investment earnings net of fees, indirect cost ratio of 0.43% pa, administration fee of $1.50 per week plus 0.22% p.a of account balance, 0.32% investment fee, $132.60 p.a. insurance premium and average 3% inflation rate p.a. (All fees are net of tax). 

The above projections are meant as an estimate only and are not intended to be used for practical purposes. Actual outcomes will depend on a range of factors outside our control. It is not intended to be used as a substitute for professional financial advice. 

How much can you salary sacrifice?

The concessional contribution limit for 2017/18 is $25,000 regardless of your age. This limit includes super guarantee (SG) payments and salary sacrifice contributions Any excess concessional contributions above these limits will be taxed at a higher rate.

Important things to know about salary sacrifice

  • Not all employers will offer you the option to salary sacrifice. If you are paid under an Award, you may not be able to sacrifice your salary to a level below what is stipulated in your Award.
  • If you are aged between 65 and 75, you will need to meet the work test (which requires that you work a minimum of 40 hours in a continuous 30-day period during the financial year) to make either personal or salary sacrifice contributions to your super.
  • If you are aged 75 or over, you are not eligible to contribute.
  • Tax treatment of salary sacrifice (before-tax) contributions is different to that of personal super contributions (after-tax), therefore it may not suit your circumstances.
  • Check with your employer which gross pay figure they will be using to calculate your 9.5% SG contributions – will it be before or after your salary sacrifice has been deducted? E.g. If you gross $50,000 p.a. and you salary sacrifice $5,000 p.a., your employer may pay your SG contribution on $45,000 instead of the $50,000 you are earning.

 

Start salary sacrificing now

Complete a Payroll Deduction form and hand it directly to your payroll department. Your employer will notify LUCRF Super of the contribution type and amount when making your superannuation payments.

We're here to help

For more information about salary sacrifice, call 1300 130 780 today.