salary sacrifice

Boost your super with extra contributions from your before-tax pay through salary sacrifice. It’s never too late to start. A little extra now can go a long way tomorrow.

 


 

what is salary sacrificing?

 

Salary sacrificing is simply choosing an amount of money from your salary for your employer to put into your super account (before your personal income tax is deducted) rather than your usual bank account when you get paid.

It’s a ‘redirection’ to your future self: every dollar you put into your super today, can keep growing for when you retire.

Salary sacrifice contributions are also known as before-tax super contributions or ‘concessional’ contributions.

Before you salary sacrifice to your super you should consider your current financial situation and how much additional money you can afford to put away, given you generally won't be able to access it until you retire.

 


 

potential benefits of salary sacrifice

 

There are two potential benefits to salary sacrificing:

 

 

Grow your super

Tipping some of your before-tax salary into your super could make a real difference in the future. You can put in as little or as much as you can afford each financial year, up to the cap of $27,500 (this includes employer contributions).

 

 

Save on tax

Before-tax salary put directly into super is generally taxed at 15%. If this is less than your marginal income tax rate, this could potentially reduce the amount of tax you have to pay.

 

 

 

how does salary sacrificing work?

 

 

 


Meet Suzie

Suzie is 25 years old and works in health care. She earns $60,000 per year and wants to keep working until age 67.

She has $5,000 in her super and her objective is to help it grow.

 

 

What could Suzie’s future look like?

 


 

10% Super Guarantee

 


 

10% Super Guarantee +$20 a week

 

 

Suzie’s super balance is projected to be significantly higher if she contributes extra into super (before tax). 

As the green column shows, if Suzie decides she can’t make any extra contributions to her super and relies solely on the superannuation guarantee made by her employer, she will have approximately $433,027 in her super at retirement.

If Suzie decides to contribute an extra $20 per week until age 67 from her before-tax income, it could mean she has an extra $61,225  in retirement.

This extra amount could help Suzie afford to update her kitchen, take a holiday – or just relax a little more.

 

*Assumptions based on: Superannuation Guarantee (SG) rate assumed at of 10.5% each year as at 1 July 2022 and increases by 0.5% per annum until it reaches and stays at 12% from 1 July 2025 onwards. Based on someone aged 24 planning to retire at age 67. Rate of return on investment of 5.7% after the deduction of investment fees and costs, and transaction costs. The projections in the case studies exclude administration fees and costs and insurance premiums within super. Tax contributions applied at 15%. Assume an inflation rate of 2.5% per annum. Salary is indexed at the inflation rate (2.5% p.a.). Future values of the projections are discounted by the inflation rate (2.5% p.a.) to today’s dollars. Projected account balance rounded to the nearest $100.

 

 

 

 

important things to know about salary sacrificing

 

If you're a middle to high-income earner, you might save tax by making before-tax super contributions. This is because the tax you pay on your super is generally less than the tax you pay on your income from salary.

However, before-tax contributions may not be as tax-effective for low-income earners. If you're a low income earner and are looking for ways to boost your super, a government co-contribution could be a good alternative.

 

tax on, tax off: know your limits
 

Concessional (before-tax) contributions

There is a limit on the total amount of concessional contributions (before tax) that can be made into your super account each financial year. Concessional contributions are your employer contributions (including those made as salary sacrifice) and personal contributions you claim as a tax deduction. If you go over the limit, you might pay extra tax.

The concessional contribution cap for everyone, regardless of age, is $27,500 per annum in the 2022/23 financial year.

Your cap may be higher if your total super balance is below $500,000 on 30 June and the contributions made to your account are below the cap in previous financial years. This is known as the carry forward of unused concessional contributions cap. You can check if you have available cap capacity using the ATO services via your myGov account.

Things to consider:

  • If you exceed your concessional contribution cap in a financial year the excess amount is included in your assessable income and taxed at your marginal tax rate.
  • You may also pay extra tax as the government applies a 15% tax offset (representing the amount of tax you’ve already paid when it was contributed to your super account). You may be able to elect to withdraw up to 85% of your excess concessional contributions to help pay the tax liability.
  • Any excess concessional contributions that are not taken from your super balance count toward your non-concessional contributions cap.

 

Tax for high income earners

If your income and concessional (before-tax) contributions during the financial year total more than $250,000 (this is the threshold for 2022/23 financial year) you could pay an additional 15% tax (30% in total) on some or all the contributions made to your super in the financial year. If you have to pay the extra tax, you’ll receive a notice of assessment from the ATO. You can pay the extra tax directly or allow the ATO to release it from your super fund.  

For more information on ways you can add to super, contribution caps and much more, read How super works (pdf).

 

 

 

 

next steps

 

Decide how much you want to put into your super from each pay, then follow these steps:
  1. Complete the Salary sacrifice form (pdf)
  2. Provide it to your employer/payroll department. Once it has been set up, your next payslip should show the amount you're adding to your super.

 

 

Anyone can make after-tax contributions to their super directly and claim the deduction on their tax return.

This is ideal if your employer doesn't offer salary sacrifice or if you are fully (or mostly) self-employed.

To claim a tax deduction on your after-tax contributions, you’ll need to:
 

  1. Complete this ATO form. This will tell us the amount you’ll want to claim.
     
  2. Mail it to us. We need to receive and check your form, then let you know it's valid (by whichever of the below comes first):
    • the date you lodge your tax return, OR
    • the last day of the financial year after the contribution was made, OR
    • you withdraw your super from HESTA, OR
    • you commence an Income Stream.
       
  3. If we’ve let you know the notice is valid, submit your tax return.

 

Learn more about after-tax contributions

 

 

 

 

 

 

Need some expert help with contributions?

Our super advisers can help work out a regular or lump sum contribution strategy that's right for you. You can see a super adviser at no extra cost: it’s all part of being with HESTA.