Is salary sacrifice concessional or non-concessional?
This is an important question to determine the benefits of you making salary sacrifice contributions to superannuation and which contribution cap to count it towards.
Salary sacrifice contributions to super is an arrangement made with your employer.
This arrangement involves forfeiting part of your salary in exchange for increased superannuation contributions.
It is a legal requirement for your employer to make mandatory superannuation guarantee (SG) contributions into super for you. Salary sacrifice contributions, therefore, are over and above the compulsory SG contributions.
Is Salary Sacrifice Concessional or Non-Concessional?
A concessional contribution is a contribution made into a superannuation account whereby the contributor claims a tax deduction for making the contribution.
A non-concessional contribution is a contribution made into a superannuation account whereby the contributor does not claim a tax deduction in respect of the contribution being made.
So, is salary sacrifice concessional or non-concessional?
Salary sacrifice contributions to super are concessional contributions, because the contributor (your employer) claims a tax deduction in respect of the contributions being made.
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Concessional Contribution Cap
The maximum concessional contributions that can be made into superannuation in the current financial year is $25,000 per person.
In saying this, you may be able to contribute more than $25,000 in any one financial year by using the unused concessional contribution carry-forward provisions by making catch-up contributions.
The types of contributions that count towards the concessional contribution cap is salary sacrifice contributions, employer superannuation (SG) contributions and personal concessional (deductible) contributions.
If you contribute more than the concessional contribution cap in any one year, the excess will count towards your non-concessional contributions cap and will be added to your individual income tax return for the year.
You might also be liable for excess concessional contribution charge.
Non-Concessional Contribution Cap
The non-concessional contribution cap is $100,000 per person per financial year.
While under age 65, you have the ability to bring-forward up to an additional two years’ worth of the cap using the bring-forward rule.
A tax deduction is unable to be claimed for non-concessional contributions.
Excess non-concessional contributions tax will be incurred if you contribute more than allowed as a non-concessional contribution.
Excess non-concessional contributions are taxed at the highest marginal tax rate.
I made this video explaining Concessional vs Non-Concessional contributions.
Should I Salary Sacrifice to Super?
By making concessional salary sacrifice contributions to super, you are reducing the amount of income that is being taxed at your individual tax rate.
However, all concessional contributions incur contributions tax when entering super.
The standard contributions tax rate is 15%, but does increase to 30% for high income earners, or can even be rebated for low-income earners.
Either way, the first step to determining if making concessional contributions is worth it is by making sure the contributions tax will be lower than your marginal tax rate that the amount would otherwise be taxed at.
In the large majority of cases, the contributions tax rate will be lower than if the same amount was taxed at your individual tax rate.
Secondly, salary sacrificing into super means that you are agreeing that you will be unable to access the funds sacrificed until retirement.
Therefore, you need to be comfortable that you can live without the funds until such time.
You may wish to salary sacrifice as part of a salary sacrifice pension strategy.
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Salary Sacrifice Calculator
A salary sacrifice calculator can help you calculate how much you can salary sacrifice without exceeding the concessional contributions cap, based on all contributions being made to your account.
You can find a basic salary sacrifice calculator here.
