Why Do People Salary-Sacrifice Into Super?
Salary sacrifice is one of the most effective ways to add to your super balance. Salary sacrifice involves the employee agreeing to exchange a portion of their salary (before tax) for an increase in superannuation contribution by their employer.
Contributions made through salary sacrifice are classified as employer contributions, no employee contributions.
These are taxed at a maximum of 15% (if you earn under $250,000 per year) which is lower than the marginal tax rate most employees are charged. The amount you ‘sacrifice’ cannot be assessed for taxation purposes, i.e. it is not subject to PAYG.
Employees should ensure that their contributions per year are not above $25,000 as this is the cap on concessional contributions and will require additional tax to be paid if surpassed.
Salary sacrifice is an effective way to minimise tax liability and increase super contributions if individuals earn more than they require for annual expenses.
After beginning the salary-sacrificing process, employees should look for two important matters. First, the calculation of ordinary time earnings by your employer that super applies to, does not change. Second, the amount paid to your super through the salary sacrifice agreement does not contribute towards any super guarantee contributions that are required of your employer. Employees should verify that neither occurs and verify any confusion with their employer.
Salary sacrifice is a trade-off between income earned in the present, and contributions made for the future. Employees may experience difficulty finding a balance that suits them or considering different aspects of their finances for the agreement with their employer. Asking for professional assistance to determine specifications for the agreement could help simplify this procedure.