• Salary sacrificing super

    Further information

    If you are an employer and would like information on salary sacrificing into super, refer to Salary sacrificing super - information for employers  

    End of further information

    Salary sacrificing super contributions

    Salary sacrifice is an arrangement where you agree to forego part of your future salary or wages in return for your employer providing benefits of a similar value.

    Attention

    If you are considering salary sacrifice arrangements, you may wish to speak to a financial adviser to discuss your salary packaging options in more detail.

    End of attention

    The contractual agreement with your employer to alter your salary package by exchanging part of your future salary or wages for another benefit is called a 'salary sacrifice arrangement'.

    There are certain requirements for making a legitimate salary sacrifice arrangement. For example, you cannot make a salary sacrifice arrangement for salary or wages that you have already earned - it must apply to future income.

    We refer to arrangements that meet our requirements as 'effective salary sacrifice arrangements' and those that do not meet our requirements as 'ineffective salary sacrifice arrangements'.

    You can sacrifice your salary or wages into a variety of benefits including:

    • super
    • car fringe benefits
    • expense payment fringe benefits, such as
      • school fees
      • child care costs
      • loan repayments.
       

     Find out more

    For more information on salary sacrificing and fringe benefits tax, refer to Salary sacrifice arrangements for employees.

    End of find out more

    Your employer can tell you if they offer salary sacrifice arrangements and what you must do to arrange one. Your employer may charge an administration fee to implement salary sacrifice arrangements.

    Attention

    We do not require your employer to offer salary sacrifice arrangements to you.

    End of attention

    Benefits of salary sacrificing super contributions

    If you make super contributions under an effective salary sacrifice arrangement, there may be benefits for both you and your employer.

    Super contributions are not a fringe benefit

    If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit for tax purposes.

    This means your employer will not:

    • be liable to pay fringe benefits tax (FBT) on the super contributions
    • need to include the super contributions as a reportable fringe benefit amount on your payment summary.

    If salary sacrificed super contributions are made to a non-complying super fund, the contributions will be a fringe benefit. Any salary sacrificed contributions made to a non-complying superannuation will not count towards the concessional contributions cap. However, they will be taxed at the highest marginal rate in the fund.

    Super contributions are deductible for your employer

    Salary sacrifice contributions are treated as employer contributions. Your employer can usually claim a tax deduction on the amount of salary sacrificed contributions they contribute to your super fund on your behalf.

    Salary sacrifice reduces your assessable income

    The sacrificed component of your total salary package is not counted as assessable income for taxation purposes. This means that it is not subject to pay as you go (PAYG) withholding tax.

    Salary sacrifice is a reportable employer super contribution

    As you influence the amount of the extra super contributions your employer makes to your super fund, any salary sacrificed amounts will be reportable employer super contributions. The reportable employer super contribution will be included on your payment summary and will affect the income tests for some tax offsets and deductions, the Medicare levy surcharge, and certain government benefits and obligations.

    Find out more

    For more information about reportable employer super contributions, refer to the Guide for employees and self employed - Reportable super contributions.

    End of find out more

    Super contributions are concessionally taxed in the fund

    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 what you would pay if you did not enter into a salary sacrifice agreement and instead were taxed on this amount at your marginal tax rate.

    However, the concessional tax treatment is limited to a set amount of contributions made each income year.

    Find out more

    For more information about concessionally taxed contribution limits, see Salary sacrifice limits.

    End of find out more

    Example

    Sally and Zoe both started work at Green Thumb Gardening, earning $45,000 a year. Zoe made a salary sacrifice arrangement to sacrifice $10,000 of her income into her complying super fund. Sally did not salary sacrifice any of her salary.

    The following table shows the difference between Sally and Zoe's assessable income and rates of tax at the end of the 2012-13 income year:

    End of example

     

    Sally Zoe

    Remuneration

    $45,000

    $45,000

    Super salary sacrifice

    -

    $10,000

    Assessable income

    $45,000

    $35,000

    Deductions

    -

    -

    Taxable income

    $45,000

    $35,000

    Income tax (using the 2012-13 tax rate)

    $6,172

    $3,192

    Medicare Levy

    $675

    $525

    Income tax and Medicare levy payable

    $6,847

    $3,717

    Tax on salary sacrificed super (15% in the fund)

    -

    $1,500

    Total tax and Medicare levy paid

    $6,847

    $5,217

    The main benefit of employees entering into an effective salary sacrificing agreement is that their salary sacrificed contributions increase their super fund account balance. This means they are accumulating more super to fund their retirement.

    • Last modified: 02 Jan 2014QC 17231