What is Salary Sacrificing into Super?
Salary sacrificing into superannuation is giving up part of your take home wage in exchange for additional superannuation contributions to save for retirement. A Salary Sacrifice contribution is classified as a Concessional Contribution. These are extra contributions on top of SG contributions.
The benefit of this is that the amount salary sacrificed will only be subject to superannuation Contributions Tax of 15% (higher for high income earners – click here), rather than your Marginal Tax Rate (MTR). It stands to reason that salary sacrificing into superannuation would not be beneficial for you if your highest MTR was below 15%.
You should only really consider salary sacrificing into superannuation if your net wage after salary sacrificing and after tax is sufficient to cover your living expenses and the amount that you salary sacrifice is not required until you meet a Superannuation Condition of Release (e.g. Permanent retirement after your Preservation Age or age 65).
You are unable to salary sacrifice if you are self employed. I have written a separate article for Self Employed Super Contributions.
What is the Maximum I can Salary Sacrifice into Super?
The maximum amount that you are able to salary sacrifice into superannuation in each financial year is generally your annual Concessional Contribution cap, less any compulsory SG contributions received for the year.
What is my Concessional Contribution Cap?
The general Concessional Contribution Cap is $25,000 (2013/14 FY) and $30,000 (2014/15 FY). However, increased Concessional Contributions are permitted in the following circumstances:
(see here for updated concessional contribution caps (2017/2018)
|Income Year||Cap for those aged 59 years or over on 30 June 2013||Cap for those aged 49 years or over on 30 June 2014|
|2014-15||$35 000||$35 000|
|2013-14||$35 000||$25 000|
What are my compulsory SG contributions?
Compulsory SG Contributions are contributions that are required to be made by your employer in respect of you as an employee.
The amount that they must contribute is expressed as a percentage of your wage and is required to be paid on at least a quarterly basis.
|Period||Superannuation Guarantee Rate (Percentage %)|
|1 July 2003 – 30 June 2013||9%|
|1 July 2013 – 30 June 2014||9.25%|
|1 July 2014 – 30 June 2015||9.5%|
|1 July 2015 – 30 June 2016||10%|
|1 July 2016 – 30 June 2017||10.5%|
|1 July 2017 – 30 June 2018||11%|
|1 July 2018 – 30 June 2019||11.5%|
|1 July 2019 – 30 June 2020 and onwards||12%|
In some case, your employment agreement may require your employer to contribute a different percentage that what is stated in the table above. You should confirm this with them.
Therefore, the maximum salary sacrifice contributions that you can make into superannuation is:
CONCESSIONAL CONTRIBUTION CAP minus COMPULSORY SG CONTRIBUTIONS.
Note: Remembering also that premiums paid into superannuation for life insurance may count towards the concessional contribution cap.
Compulsory employer contributions are only required to be made up to the SGC cap.
How to Make Maximum Salary Sacrifice Super Contributions?
If you are interested in salary sacrificing, you should discuss a salary sacrificing arrangement with your employer or payroll officer.
Salary Sacrifice contributions should be able to be contributed into a superannuation fund of your choice. However, again this should be confirmed with your employer, as your employment agreement may state otherwise.
Use our Salary Sacrifice Calculator here.
Also remember to include salary sacrifice contributions as part of your income when calculating the Super Co-Contribution. Click here to read more.
Superannuation Contributions Tax
Superannuation Contributions Tax is payable on all Salary Sacrifice contributions. Therefore, maximising salary sacrifice contributions will increase Contributions Tax, but is expected to reduce personal income tax by a greater amount.
The Contributions Tax rate is currently 15%.
Exceeding the Maximum Salary Sacrifice Amount?
Exceeding the Concessional Contributions cap will result in the excess contribution amount being taxed at your MTR.
Further, the excess amount will count towards your Non-Concessional Contributions cap.
If you would like anything clarified or have any further questions about Maximum Salary Sacrifice or any other topics, please do not hesitate to leave a comment.