Use salary sacrifice to boost your super and save on tax^
Whether it’s $5 or $500, every bit counts – so consider adding what feels right for you.
More super
The extra money you put into super now, can make a big difference to your balance over time.
Less tax
Salary sacrifice contributions are taxed at 15%, compared to the tax on your take-home pay, which can be up to 45%.^
What is salary sacrifice
Salary sacrifice are payments made on top of the compulsory superannuation contributions your employer pays to your super. If you salary sacrifice, your money goes directly into your super account instead of your pay, so you can reduce your income tax. It’s important to get good advice to make sure salary sacrifice is a good option for your own personal situation as this is general advice only.*
How a little extra can make a difference to your super
These case studies show how you can boost your super with salary sacrifice.
- Jacob - aged 42
- Ping - aged 50
Jacob is 42, earns $111,000 per year and has $126,000 in super.
He adds $100 per fortnight through salary sacrificing until he’s 67.
With these extra contributions, Jacob retires with $77,000 more in super and saves $507 in tax in the first year.+
Tax Savings
Jacob’s salary is taxed on the amount remaining after the contribution is deducted. For example: Jacob earns $111,000 per year and adds $100 per fortnight into super ($2,600 per year). Jacob’s taxable income for the year is reduced to $108,400.
Jacob saves $507 in tax in the first year!
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Ping is 50, earns $85,000 per year and has $119,000 in super.
Ping adds $150 per fortnight until age 67.
With her extra contributions, Ping retires with $69,000 more super and saves $761 in tax in the first year.+
Tax Savings
Ping’s salary is taxed on the amount remaining after her contribution is deducted. For example: When she earns $85,000,000 per year and adds $150 per fortnight into super ($3,900 per year), her taxable income for the year is reduced to $81,100.
She saves $761 in tax in the first year!
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It's easy to set up with your employer
To set up salary sacrifice with your employer, simply send them an email, or complete a paper form to hand to your employer.
Frequently asked questions
Salary sacrifice is an important part of planning your finances, so it's worth making sure it's right for you. If you're thinking about salary sacrificing into super, consider getting personal advice and checking with your employer.
Before adding to your super, you should consider:
- What are your broader financial goals?
- How much do you realistically need today, and how much can you afford to put away?
If you’re not going to access your super for several decades, but you’re looking to buy a house soon, personal contributions may not necessarily be the right option for you.
Keep in mind, the earlier in life you start contributing to super, the more it will be worth in years to come.
There are limits on how much you can pay into your super fund each financial year without having to pay extra tax, called contribution caps. The cap on concessional contributions is $27,500 each year and includes both your salary sacrifice and the super contributions your employer pays you. If you go over this limit, you’ll pay extra tax.
Take advantage of unused concessional caps
If you haven't met the contribution cap of $27,500 this financial year, you can carry the unused amount to the next year. You can carry forward any unused amounts from up to five previous financial years, starting from the 2018/19 financial year.
Salary sacrificing can be very tax-effective, but the advantages depend on your own situation. For example:
Excess contributions
Be careful that you don't exceed the limits on superannuation contributions (see contributions limits above). This could happen unexpectedly if you receive a bonus or pay rise. If you go over the limit, you'll pay extra tax. Salary sacrifice contributions are taxed at 15%. If your combined income and concessional contributions exceed $250,000 an additional 15% tax (Division 293) will apply.
Eligible tax deductions
Also, you can't claim a tax deduction on salary sacrificed contributions to your super. That's because you didn't pay any income tax on them.
Reduced take home pay
Because some of your pay goes straight to your super, you’ll have less take-home pay. So you'll need to make sure you have enough money left over for your living expenses.
Most people can make salary sacrifice contributions until the age of 75. Once you turn 75, you can’t make salary sacrifice contributions.
It also depends on where you work. Most employers offer super salary sacrifice to their employees, but it’s best to check.
A 40-year-old who adds an extra $200 post-tax ($305 pre-tax) per month for 20 years to their mortgage will improve their situation by $43,000.
If they had added the extra pre-tax amount of $305 ($260 post-tax) to their super, they would have $62,000 more in their super at age 60.
Assumptions:
- Retirement balances and equity are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.5% p.a.
- Investment returns are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% until age 55, reducing from CPI + 4% to CPI + 2.75% between the ages 55-65 (inclusive) and CPI + 2.75% from age 65 onwards.
- CPI is assumed to be 2.5% p.a.
- Mortgage interest rate is assumed to be 5.50% over the long term.
- Salary sacrifice contributions and mortgage payments are assumed to remain constant in nominal terms.
- Investment returns are assumed to be net of tax.
- This example is for illustrative purposes only and is not intended to provide a guarantee an outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. We recommend speaking to one of our professional advisers for help. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.
Even small amounts can make a difference. Contributing an extra $10 a week from age 45 could mean you’ll have $13,000 more in retirement.*
Keep in mind, the earlier in life you start contributing to super, the more it will be worth in years to come, because your money has more time to work for you. Earnings generated by superannuation benefits are usually taxed at lower rate than elsewhere.
* Retirement balances are rounded to the nearest $1,000 and are stated in today's dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 3.5% p.a.
- Investment returns are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% until age 55, reducing from CPI + 4% to CPI + 2.75% between the ages 55-65 (inclusive) and CPI + 2.75% from age 65 onwards.
- CPI is assumed to be 2.5% p.a.
- Salary Sacrifice contributions and savings increased in line with annual salary increase of 3.5% p.a. and assumes concessional contribution caps are indexed in line with AWOTE.
- Investment returns are assumed to be net of tax.
- This example is for illustrative purposes only and is not intended to provide a guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances.
- The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.
It’s worrying when markets fall, even though market volatility, or ups and downs, are a normal part of investing. When markets drop you might see low, or even negative returns from your super in the short term. And it probably feels like the worst time to contribute more to your super.
The fact is though, that just the opposite could be true. When markets fall, it can actually be a good time to contribute more. That’s because investments cost less when markets are down, so you can buy more at a lower price, like buying at a discount. History tells us that over time markets recover and rise again, and as this happens you will benefit from growth in the value of your investments. It’s important to get good advice to make sure salary sacrifice is a good option for your own personal situation as this is general advice only.*
* Personal advice requires the provider to act in the client’s best interests and take into account the client’s circumstances. These rules do not apply to general advice. This communication contains general advice only and no personal advice. We have not taken into consideration any of your objectives, financial situation or needs or any information we hold about you when providing this general advice. Further this communication does not contain, and should not be read as containing, any recommendations to you in relation to our product. Before taking any action, you should consider whether the general advice contained in this communication is appropriate to you having regard to your circumstances and needs, and seek appropriate professional advice if you think you need it. Contact us to make an appointment to see one of our representatives. You should also read our product disclosure statement and Target Market Determination before making a decision about Aware Super. These documents are available on our website at aware.com.au/pds or call us and we’ll send you a copy. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340), the trustee of Aware Super (ABN 53 226 460 365). Financial advice services are provided by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430), wholly owned by Aware Super.
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Project your super contributions and see how salary sacrificing can make a difference to your super.
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