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Salary sacrificing to your super

A way to grow your super which could reduce your tax bill

Salary sacrificing to super is a popular way to top up your super because, not only can it give you more money in retirement, but it could help you save on tax right now.

What is salary sacrifice to super?

Salary sacrifice to super is where you arrange for your employer to automatically pay some of your regular wage into your super account instead of directly to you. If you earn less than $250,000 per year, the amount you sacrifice is taxed at only 15% instead of your income tax rate which could be higher. Your employer can adjust your PAYG tax straight away, so you don't even need to wait till tax time. Check with your employer to see how this applies to you.

Is salary sacrifice into super a good idea?

If you're earning a wage, and find that you're not using up all your take-home pay each month, making extra contributions of your own to your super through salary sacrifice can boost your income in retirement.

If you're not sure, book a chat with one of our super specialists.

How much can I salary sacrifice into super?

The amount you can salary sacrifice to super will depend on how much superannuation your employer pays under the super guarantee. This is because pre-tax contributions are capped at $27,500 and includes super paid by your employer. So, in simple terms, the amount you can salary sacrifice is $27,500 minus your employer's super contributions. Note that using the ‘carry forward rule‘, you might be able to use unused caps from previous years.

If you wish to make additional contributions to your super over and above the cap, you can always make non-concessional (after-tax) contributions from your taxed income.

Examples

Tim, 30

Tim wants to salary sacrifice $35 per week ($1,820 annually). He earns $65,000 per year, has $50,000 in super and plans to retire at 67.

  No salary sacrifice With a salary sacrifice of $35 per week
Take-home pay per week $1,003 $980
Tax savings per week $0 $7.35
Super balance at retirement  $437,366 $520,338 (an extra $82,972)

Jane, 50

Jane wants to salary sacrifice $100 per week ($5,200 annually). She earns $75,000 per year, has $150,000 in super and plans to retire at 67.

  No salary sacrifice With a salary sacrifice of $100 per week
Take-home pay per week $1,128 $1,063
Tax savings per week $0 $19.50
Super balance at retirement  $498,906 $588,281 (an extra $89,375)

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How to salary sacrifice to super in four simple steps

  1. decide if you would like to salary sacrifice, and what you can afford each month.
  2. make sure the total of your employer's contribution plus salary sacrifice won't go over the $27,500 before-tax contribution cap. Note that using the ‘carry forward rule‘, you might be able to use unused caps from previous years.
  3. tell your employer that you'd like to salary sacrifice into super, and how much to transfer to your super each month.
  4. check your payslip on the first month that your salary sacrifice has been deducted. Your monthly income tax should have gone down.

Are super contributions tax deductible?

Your super contributions can be a tax deduction at tax time if, instead of salary sacrificing, you use the contribute and claim system, where you make the payments yourself and then claim a deduction. If you earn less than $250,000 per year, those contributions are usually taxed at 15% instead of your normal (often higher) tax rate.

If you salary sacrifice to super, those contributions have the tax benefit applied immediately and automatically through your PAYG tax.

If you want to make use of the contribute and claim system, you can:

  1. work out if and how much you want to voluntarily contribute, keeping in mind there is a cap of $27,500 per year on the total amount of before-tax contributions, and you may be able to use the ‘carry forward rule‘.
  2. well before 30 June, transfer your chosen amount to Prime Super via BPay® - you'll find the details in your MemberOnline login section.
  3. download an ATO Notice of intent to claim for personal super contributions form, fill it out and post it before one of the following takes place: the end of the next financial year; you lodge you tax return for the current financial year; or before you move any money out of your super account.
  4. you will receive a notification from us acknowledging your intention to claim a tax deduction, providing details on the 15% contributions tax that has been deducted, and that you can now include this amount in your annual tax return and where relevant provide this notice to your tax accountant.

It's important to remember that you cannot claim for employer contributions or salary sacrifice payments.

The need for speed in June

In order to claim your tax deduction, you must make sure that, before the end of the financial year, Prime Super receives the funds you wish to contribute.

We're here to help - book a chat with one of our super specialists.

6 different ways to contribute

Assumptions: 6% return net of all fees and taxes. Actual returns will vary significantly from year to year and could be negative in some years, particularly for investment mixes where more is invested in growth assets such as shares and property. This projection does not allow for such variations.15% contributions tax is applied. Tax rates applied are for the Financial Year 20/21. Results are shown in today's dollars, which means they are adjusted for inflation. The following default assumptions apply on inflation, 2.5% each year due to the rising cost of living (CPI inflation), a further 1.5% each year due to the cost of rising community living standards. The example is not intended to be a recommendation or provide financial advice. Consider your own investment objectives, financial situation and needs. You may wish to get advice from a licensed financial adviser.