Key points:
- Before-tax contributions are known as concessional contributions. These include:
- employer ‘Super Guarantee’ contributions (11%)
- extra employer contributions
- salary sacrifice
- personal concessional contributions which you can claim a tax deduction for.
- You can ask your employer to pay part of your pre-tax pay into your super account. This is known as a salary sacrifice or salary packaging.
- This can be a tax-effective strategy and usually suits middle to higher income earners.
- The cap on concessional contributions is $27, 500 each year. If you go over this limit you will pay extra tax.
- You may be able to contribute more than $27,500 if you have not contributed the full amount in previous years.
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How do before-tax deductions work?
When you make a before-tax super contribution, money is deducted from your salary before income tax is calculated. This means you pay less tax on the money, as before-tax contributions are only taxed at 15%
The amount of tax you save will depend on your marginal tax rate. This is the percentage the government calculates your tax on.
Super Guarantee and Employer Contributions
Employer contributions are taxed at a lower rate than regular income. Employer contributions include:
- the Super Guarantee. This is the 11% of your salary your employer must contribute to your super, plus
- any additional amount your employer might contribute to super, above the Super Guarantee.
Salary sacrifice
Salary sacrifice means that you give up some of your take home pay. Your employer re-directs that money into super. In this way you can grow your super savings and at the same time, reduce your taxable income.
Your employer deducts money from your before-tax salary each pay.
If you’re earning a high income extra payments to your super may help to reduce your tax. This is because super contributions are taxed at a lower rate than regular income.
However, if your combined salary and super contributions exceed $250,000 the tax benefit is reduced as you pay an extra 15% on before-tax contributions over the $250,000 limit.
Is salary sacrifice right for you?
Salary sacrifice is an important part of planning your finances, so it's worth making sure you’re choosing the best option for you.
If you're thinking about salary sacrificing your super, check with your employer if this is an option.
If your employer doesn’t provide salary sacrifice, you can add to your super with your after-tax income. You may then claim this as a tax deduction.
How to set up salary sacrifice with your employer
Salary sacrificing your super is easy. Your employer needs to agree to salary sacrifice into your super. Once they do, you can fill out our form and provide it to your employer:
- Download and fill out the Aware Super contributions by payroll form.
- Nominate how much super you would like to contribute. This could be a dollar amount or as a percentage of your before-tax income.
- Give your employer the completed form. They will complete the salary sacrifice process directly with us.
- Your employer will pay your salary sacrifice amount along with their contribution to your Aware Super account.
Case Study: Vesna
Vesna is 34, earns $55,600 per year and has $54,000 in super.
She decides to grow her super through salary sacrifice. Her contributions are:
- $100 per fortnight until age 52
- $150 per fortnight until age 57
- $200 per fortnight until retiring at age 67.
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Vesna retires with $160,000 more in super. This is because she’s made extra contributions through salary sacrifice.
Tax savings
Vesna’s salary is taxed on the amount remaining after the contribution is deducted.
For example:
Vesna earns $55,600 per year and adds $100 per fortnight into super ($2,600 per year). Her taxable income is reduced to $53,000.
Vesna saves $573 in tax!
Case Study: Vigo
Vigo is 42, earns $95,000 per year and has $90,000 in super.
He decides to grow his super with salary sacrifice. His contributions are:
- $100 per fortnight until age 52
- $150 per fortnight until age 57
- $500 per fortnight until retiring at age 67.
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Vigo retires with $192,000 more in super. This is because he’s made extra contributions through salary sacrifice.
Tax savings
Vigo’s salary is taxed on the amount remaining after the contribution is deducted.
For example: Vigo earns $95,000 per year and adds $100 per fortnight into super ($2,600 per year). Vigo’s taxable income for the year is reduced to $92,400.
Vigo saves $585 in tax!
Case Study: Ping
Ping is 50, earns $115,000 per year and has $170,000 in super.
She decides to grow her super through salary sacrifice. Her contributions are:
- $150 per fortnight until age 55
- $250 per fortnight until age 60
- $500 per fortnight until retiring at age 67.
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Ping retires with $146, 000 more in super. This is because she’s made extra contributions through salary sacrifice.
Tax savings
Ping’s salary is taxed on the amount remaining after her contribution is deducted.
For example: When she earns $115,000 per year and adds $150 per fortnight into super ($3,900 per year), her taxable income for the year is reduced to $111,100.
She saves $878 in tax!
Understand how much you can contribute
There are limits on how much you can pay into your super fund each financial year without having to pay extra tax. These limits are called 'contribution caps'.
There are two different types of contributions you can make to your super.
- Concessional contributions are before-tax contributions and are generally taxed at 15%. This includes the super your employer pays for you, and any super you salary sacrifice. You can contribute up to $27,500 each year.
- Non-concessional contributions are contributions you can make from your take-home pay. This is an after-tax contribution, because your employer would have already taken out the tax you need to pay on your income. You can also claim a tax deduction on these contributions. You can contribute up to $110,000 each year.
If you have more than one super fund, all your contributions are added up and count towards your caps. If you go over these caps, you may need to pay extra tax.
Learn more about how much you can contribute to super, so you can make the most of the caps and maybe save on tax.
Things to consider
Before you salary sacrifice to your super you should consider your current financial situation and how much additional money you can afford to contribute to your super. You generally won't be able to access extra contributions until you retire.
Salary sacrifice can be a tax-effective strategy and usually suits middle to higher income earners.
Related information
- How much can you contribute to super
- Personal deductable contributions
- Add to your super
- How super is taxed
- ATO – Eligibility to claim a deduction – age restrictions
- ATO How to vary your notice of intent
Related documents
Where to next?
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Take advantage of simple financial advice over the phone, for answers to questions about your Aware Super account.
Attend an event – Making the most of your super
This series aims to help you understand your super and how to make the most of it to reach your retirement goals.
Contribution caps
There are limits, or ‘caps’, on how much you can contribute to your super each year. If you go over the cap, you could end up paying more in tax.