Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value.
One example of a salary sacrifice arrangement is to have some of your salary or wages paid into your super fund instead of to you.
If your employer makes super contributions for you through a salary sacrifice agreement you should be aware how these contributions will affect your super balance.
From 1 January 2020, salary sacrificed super contributions will not:
reduce the ordinary time earnings that your employer is required to calculate your super entitlement on
count towards the amount of super guarantee contributions that your employer is required to make in order for them to avoid the super guarantee charge.
Salary sacrificed super contributions are classified as employer super contributions, rather than employee contributions. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this tax rate is less than your marginal tax rate.
The sacrificed component of your total salary package is not counted as assessable income for tax purposes. This means that it is not subject to pay as you go (PAYG) withholding tax.
If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit.
If you are deciding whether you should salary sacrifice some of your income into your super, or if you are already salary sacrificing, you can get more information or check your entitlements under the Fair Work Act 2009.
The Fair Work Commission regulates employment agreements and conditions. To check your conditions contact Fair Work Commission.
The Fair Work Ombudsman has information on deducting pay & overpaymentsExternal Link. You can phone the Fair Work Ombudsman on 13 13 94.
Salary sacrifice limitations
Unless there are limitations specified in the terms of your employment, there is no limit to the amount you can salary sacrifice into super. However, you should also consider whether the amount you wish to salary sacrifice:
will cause you to exceed your concessional (before-tax) contributions cap and attract additional tax – this concessional contributions cap limits the amounts that can be contributed to your super fund and still receive the concessional tax rate of 15%
will attract Division 293 tax – this occurs when your income (including concessional super contributions and other components) is more than:
$300,000 in one year, before 1 July 2017
$250,000 in one year, from 1 July 2017.
Once you have used up your concessional contributions cap, you can still make after-tax contributions. The annual limit for these contributions is $110,000 but you can potentially contribute up to $330,000 using the bring-forward rule. These rules can be complex, especially if you already have a relatively high super balance.
For more superannuation information, contact us today on (07) 4041 6777. We can help you understand what contributions you can make to your super whilst staying within the limitations.
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/.
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.