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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%. This 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. This means the amount sacrificed is:

    • not subject to PAYG withholding
    • not declared as income by the employee
    • taxed in the employee's complying super fund at a concessional rate.

    Super contributions to complying super funds are not a fringe benefit. This means they are not subject to fringe benefits tax.

    Example: Tax advantage of salary sacrificing to super

    On 1 July 2018, Sally and Zoe start work with the same organisation with both being paid $60,000 a year. Zoe decides to enter into an effective salary sacrifice arrangement with her employer. She will sacrifice $10,000 of her earnings into her super fund. Sally chooses to receive her full earnings of $60,000 as salary.

    The table below shows how the different arrangements affect the total tax and Medicare levy paid.

    Calculation of total tax and Medicare levy paid

    Calculation items

    Sally

    Zoe 

    Salary

    $60,000

    $60,000

    Less Super salary sacrifice

    $0

    $10,000

    Taxable income

    $60,000

    $50,000

    Income tax (based on 2018–19 tax rate)

    $11,047

    $7,797

    Medicare levy (based on taxable income)

    $1,200

    $1,000

    Tax on salary sacrifice contributions (15% in the fund)

    $0

    $1,500

    Total tax and Medicare levy paid

    $12,247

    $10,297

    Zoe pays $1,950 less in tax and Medicare levy than Sally by salary sacrificing into her super fund.

    End of example

    How much an employee can salary sacrifice

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

    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
    • salary-sacrificed contributions.

    The annual concessional contributions cap is $25,000 for everyone. Concessional contributions in excess of these caps are subject to extra tax.

    If your employee has more than one super fund, all concessional contributions made to all of their funds are added together and counted towards the concessional contributions cap.

    Non-concessional contributions cap

    Super contributions an employee makes after they have paid tax are called non-concessional contributions. These include 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 2019.

    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 income 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. These personal contributions will contribute to Rowena's non-concessional contribution cap.

    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 in which you:

    • deduct the salary-sacrificed amount
    • accrue a super guarantee liability.

    For example, if you pay your accrued June quarter contributions for the 2018–19 financial year in July, they will count towards the 2019–20 financial year.

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

    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 date. Your employee should first contact their fund to work out their contributions for the financial year to date to make sure they don’t exceed the caps.

    If you change your usual pattern of paying contributions under a salary sacrifice agreement, tell your employee. This means 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 same year, make sure you leave enough time for the contributions to be transferred and processed by the super fund.

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      Last modified: 20 Dec 2019QC 17235