Salary sacrificing is putting aside
some of your pre-tax pay into your super
for a financial benefit later on.
You can choose to set up an arrangement with your employer for some of your pay to go straight into your super fund, rather than into your bank account with the rest of your salary.
It may help you save on tax (because the money going into your super is from your salary before tax has been taken out), as well as grow your super balance. The benefit is that instead of paying tax on your sacrificed amount at your marginal rate, your sacrificed contribution is taxed at the concessional rate of 15%. This concessional tax rate is lower than even the lowest marginal tax rate.
EXAMPLE: Lauren earns $60,000 p.a. and her marginal tax rate is 32.5%. Lauren decided to ask her employer to salary sacrifice $100 per month into her Super account. These $100 contributions will be taxed inside her super fund at 15%, which is the concessional rate.
If you salary sacrifice some of your pay, this is in addition to the general 9.5% of your salary that your employer is already paying (known as Super Guarantee).
Explore the difference
Check out the retirement income calculator to see what a difference salary sacrificing can make to your retirement. Just adding $20 to $50 a week could potentially boost your balance by $34,000 to $111,000 over a 37 year period*.
You can also see:
- what age you could retire at your current salary
- how much you could potentially receive each year after you retire
- how many career changes and breaks you could potentially take, and much more.
Things to consider
There are a few things to think about before you get started.
- Don't forget to discuss this arrangement with your employer to ensure your salary sacrifice contributions will be in addition to your regular employer contributions.
- Be aware of the concessional contribution cap (currently $25,000) which is how much super you can pay into your account each year before you start getting taxed at a non-concessional rate.
- There may also be other tax consequences, so it’s worth speaking with a licensed financial adviser before you start or visit the ATO for more information.
* Calculation assumptions
This example has been generated using the Retirement Income Simulator prepared by Mercer Consulting (Australia) Pty Ltd (MCAPL) ABN 55 153 168 140 for Australian Ethical Superannuation Pty Ltd ABN 43 079 259 733, RSE L0001441) as Trustee of the Australian Ethical Retail Superannuation Fund (ABN 49 633 667 743, USI AET0100AU).
Rate of return 6.4%pa over 37 years. Contributions of $20 to $50 from gross pay made on a weekly basis throughout the period, starting at age 30 and finishing at 67. Assumed marginal tax rate of 39% on your personal income.
Assumed adjusted taxable income between $37,000 and $180,000, such that only 15% tax paid on contributions and no rebate applies. Actual dollar values used with no adjustment for inflation. Difference in returns (which may be positive or negative) and fees will alter the outcome. Contribution caps have been assumed not to be exceeded. Rates current at 1 July 2019.
The example shown may not apply to your own situation, so we recommend you consider your options carefully and seek financial advice about salary sacrificing. Salary sacrifice arrangements are subject to employer approval. Past performance should not be relied upon as an indicator of future performance.