What is salary sacrificing?
Salary sacrifice is when you make ongoing before-tax contributions from your salary to your super account.
Why should I salary sacrifice?
There are two key benefits to salary sacrificing through super.
Pay less tax
When you choose to salary sacrifice before-tax you reduce your taxable income, paying 15% tax on the amount you choose to sacrifice rather than up to 47%* you could pay through income tax.
Boost your super
Salary sacrificing boosts your super and retirement savings. Returns on your super will be compounded over the years which can boost your super balance. Any earnings within super will be taxed at a maximum of 15%. The more you save for your retirement, the better off you will be in retirement.
How much should I sacrifice?
It is up to you how much you sacrifice, and we encourage you to seek financial advice if you need help deciding. Your total contributions from salary sacrifice and employer superannuation guarantee can be up to $27,500# per year. Use our top up calculator to see how much more you could contribute. Even small contributions can make a big difference to your retirement savings.
Tim wants to salary sacrifice $35 per week ($1,820 annually). He earns $65k, has $50k 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 wants to salary sacrifice $100 per week ($5,200 annually). She earns $75k, 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)|
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.
How do I get started?
Setting up salary sacrifice is easy, simply talk to your employer.
We are here to help
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Things to consider
Your super must remain invested until you retire or meet a condition of release. If you are not able to salary sacrifice, you can still make an after-tax voluntary contribution from your savings, you may even be able to claim a tax deduction. Check the ATO's website for more information.
# Take care not to exceed your concessional contributions cap as this may result in additional tax and charges applying. You may have a higher concessional cap if you are eligible to carry forward unused amounts. *The highest marginal tax rate is 45% plus 2% Medicare Levy. The marginal for taxable income less than $18,200 is Nil. Concessional contributions such as salary sacrifice are generally taxed at 15% when received by the fund, however, a higher rate of tax may be payable on these contributions if your income and before-tax contributions are more than $250,000 in a financial year, or if you exceed your concessional contributions cap.
This document may include general advice but does not consider your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Prime Super is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.