Contributing extra to your superannuation is a good way to boost your retirement funds. One of the ways you can add more to your super is through salary sacrificing. Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value, meaning your employer will redirect some of your salary or wages into your super fund instead of to you.
These salary sacrifice contributions are taxed at a maximum rate of 15%, which is generally less than your marginal tax rate. There is no limit to the amount you can salary sacrifice provided there are no limitations in your terms of employment or industrial law. However, this concessional tax treatment is limited to a certain amount of contributions made each income year. Contributions over the relevant cap amount are subject to extra tax.
The salary sacrificed amounts count towards your concessional contributions cap, in addition to your employer’s compulsory contributions such as super guarantee payments and salary-sacrificed amounts sent by you to your employee’s super fund. The annual concessional contributions cap is $25,000 for everyone. If you have more than one fund, all concessional contributions made to all of your funds are added together and counted towards the concessional contributions cap. Concessional contributions in excess of these caps are subject to extra tax.
Salary-sacrificed amounts are paid from pre-tax salary so they don’t count as non-concessional contributions and will not be considered a fringe benefit if the super contributions are made to a complying super fund. Individuals should also consider whether the amount sacrificed will attract Division 293 tax. This tax applies when you have an income and concessional super contributions of more than $250,000. Division 293 tax levies 15% tax on taxable contributions above this threshold.