A salary sacrifice superannuation arrangements are where you are forfeiting part of your wage or salary in exchange for increased superannuation contributions from your employer.
UPDATE: As of 1 July 2017, employed individuals may be able to make personal Concessional Contributions. Check it out here.
Why would you do this?
The main reasons why you would salary sacrifice into superannuation are as follows:
- You would like to increase your savings for retirement in a tax-effective manner (all earnings within superannuation are taxed at a maximum rate of 15%)
- You would like to reduce the amount of income taxed at your marginal tax rate (any amount salary sacrificed will not be taxed at your MTR; however will incur Contributions Tax of 15%)
- You may choose to salary sacrifice as part of your transition to retirement strategy
Salary Sacrificing Superannuation for Self Employed
Many self-employed people do not have a salary or wage, but rather have drawings or personal services income.
Looking to manage your own superannuation?
This 6-Step Checklist is going to give you a complete understanding of your super.
A salary sacrificing arrangement cannot be entered into if you do not have a salary.
However, the equivalent to salary sacrificing for the self-employed is to make personal concessional contributions to superannuation. This is done by making a contribution to your superannuation account and notifying the administrator of your superannuation that you are eligible and intend on claiming a tax deduction.
Maximum Superannuation Contribution
The maximum amount that can be contributed to superannuation where a deduction is claimed is based on a persons age and summarised in the table below:
|Income Year||General Cap||Cap for those aged 59 or over on 30/6/13||Cap for those aged 49 or over on 30/6/2014|
|2014-15||30 000||$35 000||$35 000|
|2013-14||$25 000||$35 000||$25 000|
|2012-13||$25 000||$25 000||$25 000|
|2011-12||$25 000||$50 000||$50 000|
|2010-11||$25 000||$50 000||$50 000|
Prior to 1 July 2013, any amount contributed to superannuation as a Concessional Contribution in excess of the caps above would incur excess contributions tax of 31.5% – with the excess counted towards your Non-Concessional Contribution cap.
As of 1 July 2013, any amount contributed to superannuation as a Concessional Contribution in excess of the caps above will be included in your personal income tax return and effectively taxed at your marginal tax rate (MTR) – with the excess counted towards your Non-Concessional Contribution cap.
Use our Salary Sacrifice Calculator here.
Tax on Salary Sacrifice Superannuation Contributions
Salary Sacrifice Superannuation contributions incur Contributions Tax of 15% upon entering the superannuation fund.
High income earners, defined as those with incomes greater than $300,000, also incur a Contributions Tax surcharge of 15% – making their total Contributions Tax at 15%
Therefore, it is only beneficial to Salary Sacrifice to superannuation an amount that is being taxed at a higher MTR than the Contributions Tax rate.
How to enter into a Salary Sacrifice Superannuation Arrangement
In order to Salary Sacrifice into superannuation, you need to arrange with your employer the amount that you would like to Salary Sacrifice and which account you would like them to make the Salary Sacrifice superannuation contributions.
Risks of Salary Sacrificing
There are a few risks associated with Salary Sacrificing into your superannuation account:
- You should check that the contributions are actually being made into your superannuation account, because we often check the balances and transactions of our superannuation accounts a lot less regularly than we check our everyday bank accounts
- Your employer is only obligated to pay SG contributions on your reduced wage (i.e. after salary sacrifice amount has been made) however, some employers may continue to pay SG based on your gross wage, despite not being obligated to
- You need to ensure any amount salary sacrifice into superannuation does not exceed your annual Concessional Contribution cap, as stated in the table above.
- Other risks may also apply
If you would like anything clarified or have any further questions about Salary Sacrificing Superannuation or any other topics, please do not hesitate to leave a comment.