Salary sacrifice is an arrangement with your employer to make additional superannuation contributions from your pre-tax salary. Your employer makes the payments on your behalf, and they are taxed at 15% instead of at your nominal tax rate.
What does it all mean? It means that if you find yourself in a higher tax bracket, salary sacrifice might be a good way to boost your super contributions while reducing your taxable income. It means that if you can afford not to have your money right now, you could have more available to you in retirement.
There are some important things to note if you are considering salary sacrifice:
- If you earn less than $18,201, there may be no taxation benefit from salary sacrificing into super. (See How your super is taxed. You may be able to more effectively boost your super with a Government co-contribution.)
- You can’t claim deductions or tax offsets for salary sacrifice contributions, because your employer is making the contribution for you. You also can’t claim a deduction for the cost of any administration fees paid to your employer to undertake a salary sacrifice arrangement.
- A salary sacrifice contribution isn’t a fringe benefit and isn’t subject to fringe benefits tax.
- You cannot salary sacrifice income, bonuses or commissions that have already been earned.
- Salary sacrifice contributions are counted under your concessional contributions cap, which you can read about in How your super is taxed.
- When arranging this with your employer, it is best to confirm that your SG contributions have been calculated from your pre-salary sacrifice income, and not your new (lower) taxable income.
- Your salary sacrifice could reduce or eliminate the amount of employer contributions required to be paid by your employer on your behalf.
This is a sponsored advertising promotion by First Super Pty Limited (ABN 42 053 498 472, AFSL 223988) as trustee of First Super (ABN 56 286 625 181). This publication may contain general advice which has been prepared without taking into account your objectives, financial situation or needs. You should consult the Product Disclosure Statement (PDS) firstsuper.com.au/pds before making any investment decision. Before making a decision to combine your superannuation, you should consider any costs, change to insurance cover or loss of benefits that may apply and, if necessary, consult a qualified financial adviser. Past returns are not a reliable indicator of future returns. Content was accurate at the date of issue in July 2020, but may subsequently change. Please contact First Super on 1300 360 988 for updated information or to obtain a copy of the PDS. No commissions or fees are paid to NZ Relo as part of this promotion, apart from advertising costs.