The benefits of salary sacrificing into super
16 March 2022
Depending on your income, salary sacrifice can be a tax-effective way to grow your super, on top of your employer’s regular Superannuation Guarantee contributions.
How does salary sacrifice work?
Salary sacrifice is an arrangement between you and your employer to make an additional contribution to your super from your before-tax pay.
Salary sacrifice is generally only tax-effective for people with middle to high incomes, earning more than $45,000 per year (as at 2021/22).
The potential benefits of salary sacrifice
- Pay less tax
A salary sacrifice contribution is taxed at 15% when it enters your super. This rate tends to be lower than the marginal tax rate if you earn more than $45,000 per year.
- Reduce your taxable income
As well as paying less tax on your salary sacrifice contributions, you will be reducing your taxable income – and this could mean you will pay less tax on the rest of your salary.
- Grow your super
Your super is a long-term investment which takes advantage of compound interest. Making additional contributions through salary sacrifice can give your super a boost and make a big difference to your future retirement.
Here is an example to show you how someone’s overall financial position can benefit from a salary sacrifice arrangement.
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Example: John
John works full time, earning $80,000 per year. He decides to make an arrangement with his employer to salary sacrifice $50 per week into his super.
John’s salary sacrifice will reduce his taxable income. So over 12 months, his income tax will reduce from $16,987 to $16,090.
The salary sacrifice will reduce John’s take-home pay by $1,703, but he will have contributed an extra $2,210 (after 15% tax).
This means that over 12 months, John will save $507 in tax as well as giving his super balance a boost.
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Before-tax versus after-tax contributions
Local government employers may offer higher contribution arrangements, which can include personal (after tax) contributions.
Depending on their situation, an individual may be able to pay more into their super while keeping the same take-home pay if they switch from personal contributions to salary sacrifice (before-tax) contributions.
Here is an example to show you how this can work.
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Example: Sara
Sara works full time and earns $80,000 per year. She has a higher contribution arrangement with her employer, enabling her to make a 5% personal (after-tax) contribution to her super.
- Annual personal contributions: $4,000
- Take home pay: $59,013
Sara decides to change her 5% personal contribution to a salary sacrifice (before-tax) contribution, which increases her take home pay by $1,395.
She then contributes this $1,395 back into her super through a further salary sacrifice contribution.
Sara’s new situation is:
- Annual salary sacrifice contributions, after 15% tax deduction: $5,191
- Take home pay: $59,013
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Salary sacrifice calculator
You can use our salary sacrifice calculator to see the effects of salary sacrifice on your take-home pay and on the tax you pay. It can also show you what effects salary sacrifice can have on your super balance and how much extra this could give you in retirement.
Try our sacrifice calculator
Please note, the calculator provides general information only and does not consider your personal circumstances. It provides a useful indication of the effects of salary sacrifice but should not be relied on to make financial decisions. You should consider receiving financial adviser before making any decisions.
Things to consider
Salary sacrifice can be tax-effective for many people, but it isn’t suitable for everyone. Here is a list of things to look out for:
- Although salary sacrifice can reduce your taxable income, it may not change your assessable income, which is used to calculate various tax rebates and Family Tax Benefit.
- Check with your employer to determine if any employment benefits you currently receive that are based on your salary could be reduced under a salary sacrifice arrangement, including your employer’s Superannuation Guarantee contributions.
- Watch out for your concessional (before tax) contributions cap, which is $27,500 for the financial year (2021/22). If you exceed your cap, you may have to pay extra tax.
We recommend that you check that you are staying under your cap during the financial year. The quickest and easiest way to check how close you are to your cap is to log in to your account.
How to set up a salary sacrifice
If you are interested in setting up a salary sacrifice, you can talk to your employer to see if they can offer this arrangement.
If you would like further information about salary sacrificing into your super, you can call LGIAsuper on 1800 444 396.
You can also refer to our Salary Sacrifice info sheet.
We’re here to help
Our team of super specialists and financial advisers are here to help you. They can discuss salary sacrificing and other types of contributions to help you discover the best way to grow your savings.
Our financial advice service can help you plan your future*. Our members can receive limited advice on a single topic related to super, such as salary sacrificing. More comprehensive financial advice is also available, and fees will vary depending on the type and complexity of advice.
Call us on 1800 444 396 if you have any questions or would like to book an appointment.
* ESI Financial Services Pty Ltd (ESI Financial Services, ABN 93 101 428 782) (AFSL 224952) is a wholly owned entity of LGIAsuper. ESI Financial Services has engaged Industry Fund Services Limited (IFS) (ABN 54 007 016 195 AFSL 232514) to facilitate the provision of financial advice to members of LGIAsuper. LGIAsuper Financial Advisers are Authorised Representatives of IFS. In limited circumstances, a LGIAsuper Financial Adviser may also be an Authorised Representative of ESI Financial Services. Additionally, LGIAsuper has also engaged Link Advice Pty Limited (ABN 36 105 811 336, AFSL 258145) to provide LGIAsuper members with access to limited personal advice over the phone in respect to LGIAsuper and Energy Super products.
This article has been produced by LGIAsuper Trustee (ABN 94 085 088 484, AFSL 230511) as trustee for LGIAsuper (ABN 23 053 121 564) and may contain general advice, which has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider the appropriateness of the advice to your objectives, financial situation and needs before acting on the advice. You should also obtain and consider the Product Disclosure Statement (PDS) for your account before making any decision to acquire or contribute additional amounts to your LGIAsuper account – available to download at https://lgiasuper.com.au/pds or call us on 1800 444 396 to request a copy. This email contains information that is up to date at the time of publishing. Some of the information may change following its release. Any questions can be referred to LGIAsuper by calling us on 1800 444 396 or by emailing us at info@lgiasuper.com.au
