Salary sacrificing into super

If you are earning more than you need to live comfortably, salary sacrificing may be an attractive option to reduce your tax, boost your superannuation and prepare for a more comfortable retirement later on.

What is salary sacrificing?

Salary sacrificing simply involves having part of your salary paid into a superannuation fund by your employer rather than receiving it as income. These contributions are not included as part of your assessable income, reducing your income tax burden.

But you can’t have it all your own way. Salary sacrificing is such an attractive strategy but beware of exceeding the concessional contributions cap which will negate any tax benefits. Staying under your applicable limit will mean salary sacrificed contributions attract only a 15% contributions tax. This is significantly less than you would pay in income tax if you received it as income. You will also need to have a formal agreement in place with your employer. And importantly, you won’t be able to access the money until you reach your preservation age. Depending on your year of birth you may have to wait until you turn 60 before you can access your super.

A salary sacrificing case study

Karen is promoted to a senior management role and her annual salary increases from $70,000 to $80,000 per annum. She is offered the option of having the additional remuneration paid directly into her superannuation (salary sacrifice) or receiving it as income, which she could then contribute to superannuation. The following table compares the different outcomes of the two strategies including the first year’s earnings on the contribution.

Without Salary Sacrifice With Salary Sacrifice
Additional remuneration $10,000 $10,000
Less: salary sacrifice $10,000
Additional assessable income $10,000
Less: Income tax (32.5%) $3,250
Less: Medicare levy $200
Additional income after tax $6,550
Personal contribution into superannuation $6,550
Less: Superannuation contributions tax (15%) $1,500
Net contribution into superannuation $6,550 $8,500
Earnings on additional superannuation (7%) $230 $298
Less: tax on superannuation earnings (15%) $35 $45
Superannuation earnings after tax $195 $253
Additional income (inc. superannuation earnings) $10,230 $10,298
Total tax $3,485 $1,545
Total boost to superannuation $6,745 $8,753

A win for Karen

There is an obvious win-win for Karen by sacrificing the additional remuneration to super – she pays less tax and increases her superannuation balance by a larger amount.

If you want to take advantage of saving tax through salary sacrificing to super, come and talk to us. We can assist you in determining if it’s right for you, and if so, set up an effective arrangement to maximise your benefits in both the short and long term.


Australian Taxation Office

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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