Relying on regular employer contributions may not be enough to fund your post-work lifestyle. Salary sacrificing now is a great way to boost your super so you can retire with more.
Salary sacrifice involves making an agreement with your employer to sacrifice some of your pre-tax salary into your super account. This may lower your taxable income and grow your super without substantially reducing your take home pay. Depending on your income and how much you decide to salary sacrifice, you may drop into a lower income tax bracket.
Salary sacrifice contributions count toward your concessional cap and are taxed at your concessional contribution rate, not your marginal tax rate, so you may benefit over the long term from the low-tax environment of super.
Remember to clarify the terms of your salary sacrifice agreement with your employer to ensure that your employer SG contributions are based on your pre-salary sacrifice pay and that entitlements such as long-service leave or loadings are not adversely affected.
If your employer offers a salary sacrifice option, make sure that your salary sacrifice agreement is in writing.
Members who make salary sacrifice contributions should consider a number of issues:
- Salary sacrifice contributions are included in income tests used to determine eligibility for a range of government financial assistance programs including the government co-contribution, spouse contribution rebate and self-employed deduction.
- Your employer contributions and salary sacrifice contributions count toward your concessional contributions cap. Any concessional contributions over the cap are taxed at your marginal rate. 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 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).
- From 1 January 2020, your employer can not treat salary sacrifice contributions as satisfying their SG obligation or use them to reduce the ordinary time earnings calculation your super entitlement is based on. This means your employer must contribute the minimum SG contribution, as well as your agreed salary sacrifice amount to your super account.
- 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.
- 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 any adjustment to the caps.