Info we think everyone should know
Salary sacrifice may be a concept that’s never crossed your mind before.
Well, pat yourself on the back for thinking about it now, because it’s something that could save you a lot of money.
Simply put, salary sacrificing superannuation is a voluntary arrangement you make with your employer to give up some of your pre-tax salary to make voluntary contributions to your super.
In a nutshell, you sacrifice some of your take home pay now, so you can add it to your super fund and benefit from it in the future.
This means your employer will reduce the amount they send to your bank account, and increase the amount they save for your super fund, each time you get paid.
Benefits
Salary sacrifice can be worthwhile if you pay more than 15% tax on your salary.
This is because any before-tax money you pay into your super fund is taxed at 15% (or 30% if you earn more than $250,000 because of the Division 293 tax), whereas any money you take home will be taxed at your regular income tax rate, which could be as high as 47%.
Adding small amounts can also make a large difference in the long run.
An extra $25 a week from age 35 to retirement at 65 could add around $147,268 to your final retirement amount, assuming 8% return, compounded annually.
An extra $50 a week could add around $294,536.
These examples don’t include fees and costs, and returns are never guaranteed.
If you’re aspiring to buy your first home, salary sacrificing super can also act as an efficient savings method.
The First Home Super Saver scheme allows individuals to apply to withdraw voluntary contributions made to superannuation for a deposit on their first home.
Up to $15,000 of voluntary contributions made in a financial year count towards the amount that can be released, with the maximum amount that can be released being $50,000.
Check out Spaceship First Home for more info about salary sacrificing to save for your first home.
Keep in mind
With these benefits comes certain rules and regulations, the largest being the concessional cap.
Salary sacrifice contributions to super are categorised as concessional contributions, and need to be counted towards the concessional cap.
As at 1 July 2024, the annual concessional contributions cap is $30,000.
If you have any unused concessional cap amounts from five years prior, you may be able to use them to increase the amount of contributions you can make.
This is known as the carry forward rule. You can find out more about it on the ATO website.
Keep in mind, you can’t claim extra deductions or tax offsets for concessional contributions.
This is because you’re already paying less tax (15%) on the amounts you pay into your super.
And, except for the First Home Super Saver, you generally can’t access your super until you reach preservation age, or meet other conditions of release such as fall into financial hardship.
So make sure to consider whether it’s the right move for you, and seek personal, professional financial advice if you’re unsure.
Salary sacrifice certainly has its benefits, and if it sounds like something that would interest you, you could also reach out to your employer, or check out the ATO website, for more information.
