Salary sacrifice arrangements

Salary sacrifice arrangements come from your future before tax income. The amount you sacrifice is up to you and your employer, and usually is set out in a contract.

An effective salary sacrifice arrangement can reduce your overall taxation obligation by reducing your assessable income. However, the benefit you receive in exchange for the salary sacrifice agreement may have other taxation consequences. For more information on arrangements outside supersee the Australian Taxation Office (ATO) website at www.ato.gov.au

Since money placed into a super fund as part of a salary sacrifice agreement comes from your pre-tax income, it is taxed on entry to the fund and is known as a Concessional Contribution. Provided all your Concessional Contributions are within the Concessional Cap, are contributed into a complying super fund and your taxable income is less than $250,000 they will be taxed at a maximum rate of 15% instead of your marginal income tax rates. Concessional Contributions relating to income in excess of $250,000 will be taxed at 30%. Refer to the ATO website Division 293 Tax.

If you salary sacrifice into a complying super fund, the amount sacrificed is not a fringe benefit for tax purposes or subject to fringe benefits tax. They are however, reportable superannuation contributions.

No. From 1 January 2020, salary sacrificed super contributions can't be used by your employer to reduce their super guarantee, regardless of the amount you choose to salary sacrifice. This means the salary sacrificed amount does not count towards your employer's super guarantee (SG) obligations.

For example:

Joe earns $50,000 before tax, and his SG contribution is $4,750 making his total salary package $54,750. Joe decides he wants to salary sacrifice $5,250 to his super in addition to the SG payments he already receives. The total concessional contribution will be $10,000. In Joe’s case:  

• Joe’s total salary package including super is still $54,750.
• Joe’s assessable income is reduced by $5,250 and he therefore will pay less income tax.
• The employer’s total super contribution on behalf of Joe is $10,000 (note: this will be a concessional contribution), and
• Joe’s employer’s tax deductions will remain unchanged. 

The benefits of a salary sacrifice into super come from increasing the employer contribution amount above the compulsory Superannuation Guarantee amount without increasing the cost to the employer. However when you go into a salary sacrifice arrangement into super, it is important to make sure both you and your employer understand what the total employer contribution and the effects to your overall salary package will be.

Salary sacrifice arrangements are made between you and your employer on terms that both parties agree to. The agreement should be in writing. Your employer is required to make SG contributions into your super fund at least four times a year. Where additional contributions to super are made, whether from your before or after tax income, they should be remitted to the fund within 28 days of the end of the month to which the contributions applied. 

A salary sacrifice contribution directly into a spouse’s super fund is a reportable fringe benefit and therefore may not be tax effective. It is possible to split contributions made to your fund under the superannuation splitting rules.

If you qualify for the super co-contribution, it may be worthwhile looking into making a personal (Non Concessional) contribution from your after tax income. As salary sacrifice into Superannuation is a reportable contribution, the amount sacrificed must be added back to income to determine eligibility to the Co-Contribution. 

For information visit the ATO website at www.ato.gov.au