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.
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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.
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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.
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We do not require your employer to offer salary sacrifice arrangements.
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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 of age, 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 assessable income for taxation purposes. This means that the sacrificed component is not included as income on your payment summary and is not subject to pay as you go (PAYG) withholding tax.
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 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 Zoë started work at Green thumb gardening, earning $45,000 a year. Zoë 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’s and Zoë’s assessable income and rates of tax at the end of the 2007–08 income year:
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Remuneration
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$45,000
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$45,000
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Less super salary sacrifice
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-
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$10,000
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Assessable income
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$45,000
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$35,000
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Deductions
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-
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-
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Taxable income
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$45,000
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$35,000
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Income tax (using the 2007–08 tax rate)
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$7,950
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$4,550
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Medicare Levy
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$675
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$525
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Tax on super sacrificed (15% in the fund)
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-
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$1,500
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Total tax and Medicare levy paid
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$8,625
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$6,575
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Last Modified: Thursday, 5 November 2009
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