Salary sacrifice

Salary sacrifice involves making an agreement with your employer to direct some of your pre-tax salary into your super account.

Salary sacrificing into super can offer a number of advantages:

• It lowers your taxable income. However, from 1 July 2009, any sacrificed salary will be included for relevant income testing.
• Contributions up to certain limits will be taxed at the concessional rate (15%), not your marginal tax rate.
• You may benefit over the long-term from the low-tax environment of super.
• It may not substantially reduce your take-home pay.

Remember to clarify the terms of your salary sacrifice agreement with your employer, to:

• ensure that your employer contributions are based on your pre-salary sacrifice salary.
• check that entitlements, such as long-service leave or loadings, are not adversely affected.
• make sure that your salary sacrifice agreement is in writing. Take a look at our sample agreement for help.

From 1 July 2009, non-wage remuneration is included in income tests used to determine eligibility for a range of government financial assistance programs.

Certain salary sacrifice superannuation contributions are included as income for income testing purposes, as well as the self-employed 10% income test and the spouse contribution rebate income test.

This change to income could affect your eligibility to receive the Federal Government Co-contribution. If you are eligible for a co-contribution, it will continue to be automatically calculated by the Australian Taxation Office and deposited into your super fund each year after you lodge your tax return.

From 1 July 2009 there has been a reduction in the concessional contributions cap from $50,000 to $25,000* for members under age 50. For those members aged 50 or over, the transitional cap has been reduced from $100,000* to $50,000, and this applies until 30 June 2012.

Considerations

Members who make salary sacrifice contributions should consider a number of issues:

• Your employer contributions (Superannuation Guarantee) are included in these caps.
• If you are paid weekly or fortnightly, some tax years will have an additional pay period which could result in your contributions exceeding the cap in that year (the cap for salary sacrifice is effectively reduced by your employer superannuation guarantee contribution).
• Employers often pay your salary sacrifice contribution in the month after it was deducted from your salary. This could result in a contribution being made in July for salary deducted in June. In this case the contribution will be included in the cap for the new financial year.
• Any concessional contributions over the cap are taxed at the top marginal rate, currently 46.5%, including the Medicare levy. If your concessional contributions are close to the cap you should review your level of salary sacrifice contributions during the financial year.
• If you are making salary sacrifice contributions as part of a transition to retirement strategy, you may need to review your salary sacrifice contribution amount and your pension payment against the new caps.

* Applies for the 2010-11 financial year

You must arrange with your employer to have your salary sacrifice contributions sent to Media Super.

For details and forms, see How to contribute.