An Aussie’s guide to salary sacrificing super

Salary sacrificing in Australia is often treated as a bit of a “if you get it, you get it, and if you don’t, you don’t” concept. But there’s no need for your brain to turn to scrambled eggs every time someone starts talking about it. Join us as we unravel the mysteries of salary sacrificing in a fun and accessible way. Remember to always seek financial advice before making any big financial decisions and salary sacrificing any amounts.

What does salary sacrifice mean?

Moneysmart defines it as: “When you and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. This can be a tax-effective strategy and usually suits middle to higher income earners.”

In simpler words, salary sacrificing is when you and your employer decide to set aside a portion of your salary for superannuation, before taxes are taken out.

What is the difference between salary sacrificing and salary packaging?

Most people believe that these terms can be used interchangeably, but actually, that’s not 100% true. Yes, they both involve an agreement between you and your employer to give up a portion of your salary in exchange for benefits that hold a similar value. But actually, salary sacrificing and salary packaging are a bit different.

Salary sacrificing involves an agreement between you and your employer to set aside a portion of your pre-tax salary for things like superannuation or other eligible expenses. This can help lower your taxable income and potentially save on taxes. 

On the other hand, salary packaging is a broader concept that includes salary sacrificing but extends beyond just superannuation. It lets you receive non-cash benefits, like a company car, health insurance, or meal allowances, in addition to your salary. These perks often come with tax advantages.

TL;DR: salary sacrificing super focuses on diverting pre-tax income to a specific contribution, while salary packaging covers a wider range of non-cash benefits alongside salary sacrificing.

Who’s eligible for salary sacrificing?

Almost anyone!

… Kind of. Any employee is legally eligible, but only if their employer is willing to offer it. Middle to high income earners will typically get the most benefit from this, but anyone who earns over the tax-free threshold of $18,200 a year can consider it.

Are employers required to provide a salary sacrifice arrangement?

No. In Australia, employers aren’t obligated to offer salary sacrificing super to their employees. But hey, some cool bosses do! Just don’t assume it’s a given – always check with your employer to see it’s available as an option and to understand any specific terms and conditions associated with it.

What are the benefits of salary sacrificing?

The savings switch-up

Picture this: You have the power to make your money work harder for you. That’s exactly what salary sacrificing super does! By redirecting a portion of your pre-tax income towards your superannuation, you’re essentially supercharging your savings potential. It’s like flipping a savings switch that brings you closer to your dreams. 

A win-win game with the taxman 

Taxes might not sound like the most exciting topic, but sometimes you can turn the tables in your favour. Imagine a win-win scenario where you can reduce your taxable income and keep more money in your pocket. With salary sacrificing super, you can do just that! By lowering your taxable income, you also lower the amount of tax you have to pay.

Unleashing financial freedom 

It’s not just about saving on taxes; it’s also about increasing your retirement fund.  But there are also some circumstances where you can access your superannuation early, for example the First Home Super Saver scheme, but you should always seek financial advice before deciding if accessing your super early is in your best interests. 

Read more: What is superannuation and why should I care about it?

Planting the seeds of future wealth 

Prepare to be amazed by the magic of compounding interest! One of the fantastic side effects is the potential for retirement funds to grow exponentially over time. By consistently contributing a portion of your income, you’re giving your money the opportunity to compound and multiply. It’s like planting seeds of future wealth that blossom into a bountiful harvest.

It’s super duper

Ready to give your superannuation a super boost? Enter salary sacrificing! It’s like a financial power-up where you divert a portion of your pre-tax income straight into your super fund. Boom! That money gets taxed at a friendly rate of just 15% on the first $27,500 of salary sacrificed contributions per year, meaning potential tax savings for you.

Know your limits

There’s a limit to how much you can contribute to your super at the 15% tax rate. The combined total of your employer and salary sacrificed concessional contributions can’t exceed $27,500 per financial year. If you go over this limit, the excess concessional contributions will be taxed at your marginal tax rate (e.g 32.5% or 37% depending on your income) plus an additional charge. Stay within the limits and consult a financial advisor for guidance. Trust us, your future self will thank you for talking to a professional before making any big decisions.

Congratulations! You’re now officially a salary sacrificing super whizz. Armed with this knowledge, you can make smarter financial decisions regarding tax, super and savings. Don’t forget to always seek financial advice before making any big financial decisions and salary sacrificing any amounts.

Swag makes superannuation simple

Swag gives you the ability to conveniently access your superannuation information whenever you want. You can import and save your superannuation details via the Money tab to keep your super details in one place. Soon you’ll be able to take control of your superannuation making it easier to manage, contribute and grow.

Also coming soon in the Swag app: Salary sacrificing super! This Swag enhancement makes it easy to submit a request for your employer to pay part of your pre-tax pay into your super account. 

 

Disclaimer

The information in this article is current as at July 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The information in this article is general information provided in good faith without taking into account your personal circumstances, and financial situation or needs, and should not be relied on as professional advice. Some Information is based on data supplied by third parties and whilst such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional legal, financial and taxation advice before making any important decisions or solely relying on the information in this article.

The information in this article is current as at 22 June 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The views expressed in this article are general information provided in good faith to assist job seekers in the current market, and should not be relied on as professional advice. Some Information is based on data supplied by third parties and whilst such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any important career decisions or solely relying on the information in this article.