Salary Sacrifice & Super
Salary sacrifice can be used to divert part of an employee's wage into superannuation.
Importantly, this occurs before you receive your salary. Meaning, you can arrange with your employer to have part of your wage paid directly into your super fund -- by your employer.
For example, Barangaroo earns $100,000 but wants to contribute more to super. His employer agrees to pay $5,000 directly to his super fund. Barangaroo will have a taxable income of $95,000 ($100,000 - $5,000).
In the example above, Barangaroo makes good money ($100,000), so he will pay a high rate of tax (e.g. 37%). Because his employer's contributions to super (on his behalf) are taxed at only 15%, he might pay less tax (15% vs $37%) by contributing money to super via salary sacrifice.
Salary sacrifice is a type of concessional contribution ("before tax"), which have yearly limits. Concessional contributions include the mandatory superannuation guarantee. If Barangaroo goes over the cap, he may be forced to pay extra tax.
Something else to think about: From 1 July 2017, anyone up to the age of 65 (and anyone aged 65 to 74, subject to the 'work test') can make concessional contributions to super by making a personal contribution (from their own pocket) and claiming a tax deduction.
For example, Barangaroo earns $100,000. He saves $5,000 in a bank account then contributes it to super. Then, he claims a tax deduction (after talking with his super fund and accountant, of course). See more here.
Finally, not all employers will offer a salary sacrifice arrangement - it's not mandatory.
Many Aussies can now contribute to super and claim a tax deduction. For some people, this has replaced the need to use a salary sacrifice arrangement. Previously, only the self-employed could do this.
As always, it’s vital you speak to a financial or tax professional who can recommend the best strategy for you.
Test Your Knowledge
Felicity paints pictures on emu eggs for a living, earning $60,000. She wants to contribute more money to super, but her employer will not accept it. What can she do?
Not every employer offers a salary sacrifice arrangement. However, from 1 July 2017, Felicity may have other options, like making a direct deposit to super from her own pocket. She might also be able to claim a tax deduction! She will speak to her accountant first.
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