Salary sacrificing super
Salary sacrificing super
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
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.
|
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.
|
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. We refer to arrangements that meet our requirements as 'effective salary sacrifice arrangements' and to those that do not 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.
Your employer can tell you if they offer salary sacrifice arrangements and what you must do to arrange a salary sacrifice arrangement. Your employer may charge an administration fee to implement salary sacrifice arrangements.
|
We do not require your employer to offer salary sacrifice arrangements.
|
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.
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.
Salary sacrificed contributions are treated as employer contributions.
If salary sacrificed super contributions are made to a non-complying super fund, the contributions will be a fringe benefit.
Your employer will:
- be subject to FBT on the sacrificed amount
- need to record the sacrificed amount on your payment summary as a reportable fringe benefit.
Super contributions are deductible for your employer
If you are under 75 years old, 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 your 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.
Super contributions are concessionally taxed in the fund
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
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 amount of tax is less than what you would pay if you did not enter into a salary sacrifice agreement and instead were subject to PAYG withholding tax on your earnings.
However, the concessional tax treatment is limited to a set amount of contributions made each income year.
Example
On 1 July 2007, Sally and Zoe started work at Green Thumb Gardening, earning $45,000 a year. Zoe entered into a salary sacrifice arrangement with her employer to sacrifice $10,000 of her earnings into her 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 2007-08 income year:
|
|
Sally
|
Zoe
|
Remuneration
|
$45,000
|
$45,000
|
Less super salary sacrifice
|
-
|
$10,000
|
Assessable income
|
$45,000
|
$35,000
|
Deductions
|
-
|
-
|
Taxable income
|
$45,000
|
$35,000
|
Income tax (using the 2007-08 tax rate)
|
$7,950
|
$4,550
|
Medicare Levy
|
$675
|
$525
|
Tax on super sacrificed (15% in the fund)
|
-
|
$1,500
|
Total tax and Medicare levy paid
|
$8,625
|
$6,575
|
Salary sacrifice limits
You must check the terms of your relevant:
- industrial law
- award
- workplace agreement
- employment contract.
If there are no limitations specified in the terms of your employment, there is no limit to the amount you can salary sacrifice.
However, when salary sacrificing super contributions you must consider how the amount of your contributions will affect the amount of tax you pay in your fund.
Salary sacrificed contributions to your super fund form part of the concessional contributions in the fund. Concessional contributions are included in the assessable income of your fund and are taxed at 15%. However, there is a cap on the amount of concessional contributions for each person for each income year. If you have contributions to more than one super fund, all contributions will be added together.
Concessional contributions also include:
- your employer's contributions under the super guarantee
- any additional contributions your employer makes on your behalf.
Your concessional contributions cap depends on your age and the year in which the contributions are made.
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
Financial year
|
Under 50 years old
|
50 years old or over
|
2009-10 and onwards
|
$25,000
(indexed annually)
|
$50,000
(not indexed)
This is a transitional cap and ceases on 30 June 2012.
|
2008-09 and 2007-08
|
$50,000
|
$100,000
|
To avoid paying a higher rate of tax on your super contributions, you should ensure that your salary sacrificed amount and any other concessional contributions to your super fund, such as additional employer super guarantee payments or employer payments above the super guarantee, do not exceed the cap amount.
If you are an eligible employee for super guarantee purposes, your employer is required to pay a minimum amount into your super fund. This is known as the super guarantee.
Super guarantee payments are worked out at 9% of each employee's earnings base. From 1 July 2008, 'earnings base' will be the same as ordinary time earnings.
Super guarantee payment is calculated on your reduced salary
The amount of super guarantee your employer is required to pay is worked out on your earnings base. As entering into a salary sacrifice arrangement reduces your earnings base, it will reduce the amount of super guarantee your employer is required to pay.
The salary sacrificed amount counts towards your employer's super guarantee payment obligations
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
If you make super contributions under a salary sacrifice agreement, the sacrificed amount is paid into your fund by your employer and is treated as an employer contribution. This means that the sacrificed amount counts towards your employer's super guarantee contribution obligations.
If your salary sacrificed super contribution is more than the super guarantee amount your employer is required to pay (currently 9% of your earnings base), then your employer is not required under super guarantee legislation to pay an additional amount on top of your salary sacrificed amounts.
|
For more information about super guarantee requirements, refer to Eligibility.
|
Example
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
Matthew and Jo work for the ABC department store, earning $45,000 a year. Jo entered into a salary sacrifice arrangement with her employer to sacrifice $10,000 of her earnings into her super fund. Matthew did not salary sacrifice any of his salary.
The following table shows the difference between Matthew and Jo's super guarantee payments over the four quarters, for the year ending 30 June 2008:
|
|
Matthew
|
Jo
|
Annual remuneration
|
$45,000
|
$45,000
|
Less super salary sacrifice
|
-
|
$10,000
|
Ordinary time earnings
|
$45,000
|
$35,000
|
9% employer contribution
|
$4,050
|
$3,150
|
Salary sacrificed amount paid by employer
|
-
|
$10,000
|
Additional amount the employer has to pay to meet super guarantee obligations
|
$4,050
|
$0
|
Jo should be aware that her employer is not required to make additional super contributions. The salary sacrifice agreement between Jo and her employer should specify whether her employer will make any additional super contributions.
Super payments based on pre-sacrifice salary amounts
If you want your employer to make a super guarantee payment based on your earnings before you entered into a salary sacrifice arrangement, you must negotiate this with your employer and include it as part of your salary agreement or employment contract.
Under the law, your employer is not required to contribute more than the minimum legislated amount.
Example
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
Betty has a pre-sacrifice salary of $45,000. Betty and her employer agree as part of her salary sacrifice arrangement that, in addition to the $10,000 she plans to salary sacrifice into her super fund, her employer will also make an additional contribution of $4,050.
This contribution is the super guarantee amount Betty's employer would need to pay based on 9% of her pre-sacrifice salary.
Payment of your sacrificed amounts
Your employer is required to make super guarantee contributions into your super fund at least four times a year to satisfy their obligations.
Where salary sacrificed super contributions are greater than the super guarantee amount, we do not have requirements about when your employer must contribute the additional amount above the minimum super guarantee amount into your fund.
If you want your employer to pay your salary sacrificed contributions at certain times, discuss this with them when negotiating the terms of your salary sacrifice arrangement.
Example
|
In the 2010-11 and 2011-12 federal budgets the government announced future changes to super. These changes, if passed by parliament, will change the information on this page.
|
Luke earns $45,000 a year and salary sacrifices $10,000 into his super fund. However, Luke and his employer agree additional contributions of $4,050 will be made, so the total contribution is $14,050. The employer makes payments of:
- $3,512.50 on 28 October 2007, for the quarter ending 30 September 2007
- $3,512.50 on 28 January 2008, for the quarter ending 31 December 2007
- $3,512.50 on 28 April 2008, for the quarter ending 31 March 2008
- $3,512.50 on 28 August 2008, for the quarter ending 30 June 2008.
The last payment was made after the close-off date for super guarantee payments. However, Luke's employer paid enough payments during earlier quarters so that they met their super guarantee obligations for the quarter ending 30 June 2008.
While the late payment does not affect Luke's employer's super guarantee obligations, it does affect their tax deductions. As Luke's employer did not make the final contribution to his super fund until 28 August, after the end of the 2007-08 income year, the employer cannot claim a deduction for this contribution for that income year. However, Luke's employer will be able to deduct the amount in the income year that it is made.
Salary sacrifice super contributions for your spouse
While you may be able to salary sacrifice super contributions for your spouse, the tax implications are less favourable for both you and your employer.
Contributions to your spouse's super fund are a fringe benefit. Your employer is liable to pay FBT on the amount and your payment summary includes the amount as a reportable fringe benefit.
Enter into the arrangement before you perform the work
To be an effective salary sacrifice arrangement, the arrangement must be for your future earnings rather than any salary, wages or entitlements you have already earned. For example, an effective salary sacrifice arrangement cannot include annual or long service leave you have accrued before entering into the arrangement.
Make an agreement between you and your employer
We recommend that you and your employer clearly state and agree on all the terms of the salary sacrifice arrangement. If you enter into an undocumented salary sacrifice arrangement, you may have difficulty establishing the facts of your agreement.
Depending on the terms of any contract of employment or industrial agreement, employees can renegotiate a salary sacrifice arrangement at any time. Where a renewable contract exists, you and your employer can renegotiate amounts of salary or wages to be sacrificed before the start of each renewal.
|
If you sacrifice all your salary or wages to super you may not be entitled to a super co-contribution.
|
Permanently forego sacrificed salary
The sacrificed salary must be permanently foregone for the period of the arrangement. For example, if a salary sacrificed super contribution is not made and instead cashed out at the end of a salary sacrifice arrangement accounting period, the amount cashed out is salary and is taxed at PAYG withholding rates.
When salary is sacrificed into super, the contributions are preserved in the fund or retirement savings account and you cannot access them until you satisfy a condition of release such as attaining age 65.
We treat super contributions made under an ineffective arrangement as a payment of salary and wages. The super contributions are included in your assessable income and subject to PAYG withholding tax.
The amount contributed to your fund will be considered a personal contribution rather than an employer contribution and your employer will not be entitled to a tax deduction for the sacrificed amount. In addition, the contributions will count towards the non-concessional contributions cap. If the cap is breached you will be subject to additional tax on the contributions.
Your employer may also be liable to the super guarantee charge if they have not contributed a super guarantee amount in addition to the salary sacrificed super contributions.
When you enter into a salary sacrifice agreement you must keep relevant documents for five years. This includes:
- copies of your agreement
- documents showing any expenses.
For more information, refer to:
To obtain a copy of our publications or for more information:
- order the publication online
- phone our publications distribution service on 1300 720 092
- phone 13 10 20.
Last Modified: Tuesday, 27 July 2010
|