Boost your super and potentially manage your tax at the same time
What are salary sacrifice contributions?
Making a before-tax contribution to your super is known as ‘salary sacrifice’. It involves your employer contributing some of your pre-tax salary or wages directly into your super fund.
For many Australians, relying on your mandated employer contribution, typically a 9.5% super guarantee, may not be enough. By using a smart strategy like salary sacrifice, you could reduce your income tax and boost your super balance at the same time.
You should consider whether the salary amount sacrificed will attract an additional 15% tax – broadly, this occurs when you have an income and concessional super contributions of more than $25,000 in the 2017/18 financial year.
Why should I salary sacrifice?
The key advantage of salary sacrificing is that you’ll be taxed at a maximum rate of just 15%1 (or 30% if you are also subject to the additional 15% tax) on salary sacrifice contributions and any earnings on these contributions once invested in your super fund and not at your marginal rate (which could be up to 47%).
Therefore, depending on your circumstances, making salary sacrifice super contributions could reduce the amount of tax you have to pay on your salary, wages or a bonus by up to 32% and enable you to make a larger investment for your retirement.
The table below gives a good indication of what the Association of Super Funds of Australia (ASFA) suggests you currently need at retirement to enjoy a comfortable lifestyle. Salary sacrificing is a great way to reach these goals faster and more effectively.