As an employee, salary-sacrificing superannuation, by making before-tax super contributions, is a popular strategy for middle-to-high income earners. Salary sacrificed superannuation contributions under an effective salary sacrifice arrangement are not considered to be fringe benefits and can be a tax effective strategy for increasing personal and retirement wealth.

The general principle behind salary-sacrificing into super is to increase your superannuation balance (and pay 15% contributions tax, and for those earning an adjusted taxable income of more than $300,000, pay 30% tax on super contributions) while reducing the amount of income tax payable (up to 49% including Medicare levy) on your salary or wages.

Before you decide to embark on a salary sacrifice arrangement using superannuation contributions, be sure to speak to your accountant about the tax implications, and ensure you do not lose out financially on your employment package.

The benefits

The greatest benefit of salary sacrificing towards your superannuation is boosting your super while saving on tax.

If an income earner currently is on a wage of $120,000, and choses to salary sacrifice $10,000 p.a, that income earner would save approximately $3,900 in income tax, whilst only paying $1,500 in contributions tax in their superfund. This is an overall tax savings of $2,400. Over 15 years, using the same assumptions, this would amount to more than $35,000 in additional savings for their retirement.

The watch out

There are rules and limitations to the amount you can salary sacrifice so it’s important to seek advice.

Currently, Government regulations mean the money you put into your super can’t be touched until you’re 60, unless some very strict conditions are met. So if you plan to retire before 60, you must consider how you will fund your retirement.

Implications of entering into an arrangement

As an employee, you need to be aware of how entering into a salary sacrifice arrangement with your employer will affect you:

• you pay income tax on the reduced salary or wages
• salary sacrificed superannuation contributions are classified as employer superannuation contributions (rather than employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject
• your employer may be required to report certain benefits on your payment summary
• It is your responsibility to manage your overall concessional contributions to ensure you do not breach the concessional contribution caps.

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