Salary Sacrifice

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What is salary sacrifice?

A salary sacrifice arrangement arises where you forego part of your pre-tax salary in return for other benefits provided by your employer, e.g. superannuation contributions or a motor vehicle.

A superannuation salary sacrifice arrangement can mean:

• Increased super benefits for you

• A reduction in your assessable income and possibly the overall amount of tax you pay, and

• No effect to the tax deductibility of the benefit for your employer.

What type of super contribution is salary sacrifice?

Salary sacrifice contributions are ‘concessional contributions’ and are subject to 15% contributions tax - deducted by the super fund when the contributions are received. Concessional contributions are subject to annual caps with additional ‘excess contributions tax’ applying if these caps are exceeded.

For the 2011-12 financial year, the concessional contribution cap is $25,000 for those under the age of 50. For individuals aged 50 and over (at any time in the financial year), the concessional contribution cap for the 2011-12 financial year is $50,000.

If your super fund does not have your Tax File Number (TFN), an additional ‘no-TFN Contributions Tax’ may also be deducted from salary sacrifice contributions so it pays to make sure your TFN is with your fund!

How does this differ from a voluntary personal contribution (personal post-tax contribution)?

Personal contributions are ‘non-concessional contributions’ and essentially means that no tax deduction is being claimed for the contribution (i.e. if self-employed for example). No contributions tax is payable on non-concessional contributions.

The non-concessional contribution cap is currently $150,000 p.a. with the ability to bring forward to two years of future contributions to contribute up to $450,000 in any one year (for individuals that are under 65 in the relevant income year).

How much salary can be sacrificed?

There is no limit to amount of salary that you can sacrifice as long as there is no limit in the applicable industrial law, award or similar agreement. Amounts paid to superannuation which are above concessional contribution limits will result in an excess contributions tax of 31.5% but are still deductible to the employer.

When should salary sacrifice contributions be paid by my employer?

Contributions should be paid in accordance with the relevant industrial award, employment agreement or general SG requirements.

Otherwise, there is no requirement as to when salary sacrifice contributions should be paid so it is a good idea to agree this up front with your employer.

Is salary sacrifice right for me?

The benefits of sacrificing salary for superannuation depend on your personal circumstances, including income and tax rates. Before deciding to salary sacrifice, you should consider carefully all the facts and decide whether a Salary Sacrifice arrangement for superannuation will benefit you.

What rules apply to a salary sacrifice arrangement?

• A contract of employment, including details of remuneration and any salary sacrifice arrangement, between you and your employer must exist prior to work being performed. It is advisable that all the terms of the arrangement, including its effect on SG contributions, are clearly documented.

• The salary sacrifice arrangement must be entered into before you become entitled to be paid. Subject to the terms of any contract of employment, industrial agreement or award, employees can renegotiate a salary sacrifice arrangement at any time.

• The sacrificed salary must be permanently foregone for the period of the arrangement. Any benefit entitlements paid in cash form part of normal salary or wages. This includes deposits made by employers into employees’ bank accounts.

• Salary sacrifice contributions:

o Must be made to a complying superannuation fund

o Incur 15% contributions tax when received by the fund

o Are preserved

o Do not qualify for the government co-contribution.

Salary sacrifice calculator

To find out how salary sacrifice may benefit you, try our salary sacrifice calculator.

Can leave entitlements be sacrificed?

Leave entitlements can only be sacrificed before you have fulfilled the conditions to be eligible to take leave. This means that leave entitlements already owed to an employee cannot be sacrificed, but leave entitlements they will be entitled to in the future can be sacrificed.

Can an employee salary sacrifice for spouse superannuation contributions?

Spouse contributions are non-concessional contributions which cannot be paid through a Salary Sacrifice arrangement. They are paid from after-tax income.

Making salary sacrifice super contributions

Speak to your employer or payroll officer about what salary sacrificing options are available to you.

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