Salary Sacrifice Contributions
Salary sacrifice contributions involves sacrificing salary for super contributions. This has the following consequences;
- Your salary decreases and so does your taxable income. You pay less tax.
- The contribution is taxed at 15% and so there may not be much benefit for those on low incomes as their salary may have been taxed at a lower rate had they not sacrificed it.
- If you are on a higher tax bracket there is an immediate gain as a result of the income being taxed at 15% instead of their higher marginal rate.
- The contributions boost your retirement savings.
How much salary can I sacrifice?
- Your total concessional contribution is limited to $25,000 a year.
- Concessional contributions include employer and salary sacrifice contributions.
I am self employed. Can I salary sacrifice?
Yes, you can make pre-tax contributions in exactly the same way and to the same extent as an employed person. That means you can contribute and deduct (for tax purposes) $25,000 pa. You must notify your superannuation fund of your intention to claim a deduction and this could impact your ability to claim a government co-contribution.
John earns $70,000 pa and makes a salary sacrifice contribution of $10,000. The net benefit is as follows;
|No salary sacrifice||With salary sacrifice|
The net benefit is calculated as the net salary sacrifice contribution (less 15% tax) less the drop in net income. That is ($10,000 * .85) – ($54,653 – $48,543)