When you choose to ‘sacrifice’ part of your before-tax salary to go to your super account, these contributions will be generally taxed at a maximum rate of 15%, which is generally less than your marginal tax rate.
A comfortable retirement lifestyle will cost the average couple around $61,061 per year, according to the Association of Superannuation Funds of Australia.Based on budgets for various households and living standards for those aged around 65 (March quarter 2019, national).
For some of us, that could mean the 10% our employers contribute won’t be enough to live on during retirement, which is why the Government encourages everyone to put more money into super.
One way to do that is through pre-tax salary sacrificing. Any contributions you make with pre-tax dollars up to the annual cap are taxed at 15% - which is generally much lower than your marginal tax rate.
So if your marginal tax rate is above 15%, every dollar you put into super through salary sacrificing is worth more to you than that dollar in take-home pay.
Most people can make personal after-tax contributions and then claim a tax deduction – which means you’ll receive the same tax advantages as a salary sacrifice contribution.
national). Source: http://www.superannuation.asn.au/resources/retirement-standard
(June Quarter 2015, national). Source: http://www.superannuation.asn.au/resources/retirement-standard
How to set-up salary sacrifice
There are two quick and easy ways to set-up salary sacrifice:
- Use the pre-populated email template to request salary sacrifice with your employer
- Download the salary sacrifice form (just complete the form, print it off and hand it to your employer)
What are the before-tax contribution caps?
The government limits the amount you can contribute to your super each year without paying extra tax. These limits are called contribution caps which are in place for both concessional (before-tax) and non-concessional (after-tax) contributions.
From 1 July 2021, there is an annual cap of $27,500 for concessional contributions. If eligible, you may be able to carry forward and use any unused cap amounts up to five years.
For example, if you contributed $20,000 in 2019/20, and $20,000 in 2020/21, you’ll have $10,000 in ‘unused’ contributions that you may contribute in 2021/22 in addition to your annual cap $27,500.
This cap is inclusive of the 10% super guarantee from your employer. It’s also a combined total across all funds you might have, which is important to keep in mind if you’re contributing to more than one super account.
If your contributions exceed the cap, this amount will be considered part of your assessable income and taxed at your marginal tax rate.
The Australian Taxation Office will give you the opportunity to apply for a refund of up to 85% of the excess contributions and you’ll also receive a 15% tax offset in your tax return.
For more information, refer to our Super tax caps factsheet.
How to boost your super with salary sacrificing
Salary sacrifice is an arrangement between you and your employer.
To set up regular payments, contact your payroll or HR department to confirm they offer salary sacrificing.
If they do, simply fill out the Contributions by payroll deduction form and hand it to your employer. There are no special requirements about eligibility – anyone with an employer who offers salary sacrificing can do it.
It’s important to understand however that contributing to super through salary sacrificing may reduce the amount your employer contributes.
Your employer is required to contribute 10% of your gross income to super.
When you salary sacrifice into super, your gross income may be reduced by that amount. So if you’re earning $55,000 per annum before tax and you sacrifice $5000, then your gross income for the purposes of calculating the 10% your employer must contribute is $50,000. So it's best to check with your employer first.
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