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  • Employee's tax and contribution caps

    Super contributions made under an effective salary sacrifice arrangement are taxed in your employee's complying super fund at a concessional rate of 15%, which is usually less than they would pay if they took the money as salary or wages.

    This concessional tax treatment is limited to a certain amount of contributions made each income year. Contributions over the relevant cap amount are subject to extra tax.

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    Tax advantage of salary sacrificing to super

    The employee's assessable income is reduced by the amount sacrificed – that is, the amount sacrificed is not subject to PAYG withholding and is not declared as income by the employee. Instead, it is taxed in the employee's complying super fund at a concessional rate.

    Super contributions to complying super funds are not a fringe benefit (and therefore not subject to fringe benefits tax).

    Example: Tax advantage of salary sacrificing to super

    On 1 July 2014, Sally and Zoe start work with the same organisation, for remuneration of $60,000 a year. Zoe decides to enter into an effective salary sacrifice arrangement with her employer and will sacrifice $10,000 of her earnings into her super fund. Sally receives her earnings of $60,000 as salary.

    Calculation of total tax and Medicare levy paid

    Calculation items






    Less Super salary sacrifice



    Assessable income



    Deductions: Taxable income



    Deductions: Income tax (based on 2014–15 tax rate)



    Deductions: Medicare levy



    Tax on super sacrificed (15% in the fund)



    Total tax and Medicare levy paid




    End of example

    How much an employee can salary sacrifice

    Check the terms of the relevant industrial law, award, workplace agreement or employment contract under which your employee is working. If there are no limitations specified in the terms of their employment, there's no limit to the amount your employee can salary sacrifice.

    However, your employee needs to consider whether the amount salary sacrificed to super will exceed the concessional contributions cap and affect the amount of tax on their super contributions.

    Concessional contributions cap

    Salary-sacrificed super contributions are part of the employee's 'concessional contributions' for the financial year. Concessional contributions include employer contributions, such as super guarantee payments and salary-sacrificed amounts sent by you to your employee's super fund.

    The annual concessional contributions cap is $25,000 for everyone.

    If you have more than one fund, all concessional contributions made to all of your funds are added together and counted towards the concessional contributions cap.

    Concessional contributions in excess of these caps are subject to extra tax.

    Non-concessional contributions cap

    Super contributions an employee makes from money on which they've already paid tax are non-concessional contributions. This includes any amounts you pay to their super fund on their behalf from their after-tax salary. The non-concessional contributions cap is $100,000 for individuals with a total superannuation balance less than $1,600,000 on 30 June 2017.

    Salary-sacrificed amounts are paid from pre-tax salary so they don’t count as non-concessional contributions.

    Example: Non-concessional contributions cap

    Rowena has an after-tax fortnightly income of $2,000. Her employer sends $1,000 of her pay to her home loan account, $800 to her savings account and $200 to her super fund. Although the $200 is paid by her employer to her super fund, this is a personal contribution for Rowena. Her employer is merely paying her money to the super fund on her behalf and at her direction.

    End of example

    Which year employer contributions apply to

    Super contributions you make for an employee count towards their contribution caps in the financial year the super fund receives them, not the financial year you deduct the salary-sacrificed amount or accrue a super guarantee liability. For example, if you pay your accrued June quarter contributions for the 2015–16 financial year in July, they will count towards the 2016–17 financial year.

    The timing of your contributions can have consequences for an employee's contributions caps and tax, so:

    • When setting up or altering a salary sacrifice agreement, tell your employee the dates when you will actually pay salary-sacrificed amounts. Your employee may ask you to change the timing of their super contributions so their super fund receives them by a certain time. (Your employee should first contact their fund to work out the running balance of their contributions for the year and ensure they don’t exceed the caps.)
    • If you change your usual pattern of paying (or not paying) contributions in accordance with a salary sacrifice agreement, tell your employee so they have the opportunity to adjust their contributions to stay under the caps.
    • When making payments at the end of the financial year that are intended to be counted towards the contributions caps in that year, make sure you leave enough time for the funds to be transferred and processed by the fund.

    See also:

      Last modified: 19 Feb 2018QC 17235