Opting for salary sacrifice can be a smart way to grow your superannuation balance and strengthen your financial future. By contributing additional pre-tax income to your super fund, you could set yourself up for a more comfortable retirement. Here’s what to consider when deciding if salary sacrifice is right for you.
What Is Salary Sacrifice?
Salary sacrificing is an arrangement where you agree with your employer to receive less pre-tax income in exchange for additional benefits, which may include super contributions. Depending on your industry, these benefits could range from car and mortgage payments to tools or protective clothing. Most employers offer salary sacrifice options, allowing you to contribute a portion of your pre-tax income to your super fund on top of your standard super guarantee (SG) rate, currently 11.5% for the 2024–2025 financial year. These salary-sacrificed contributions are taxed at 15%, lower than most personal income tax rates.
Key Benefits of Salary Sacrifice to Super
- Automatic Super Contributions: Your employer handles the contributions, making it an easy way to grow your super.
- Accelerated Super Growth: Consistent, additional contributions can significantly increase your super balance over time, especially if you start early.
- Tax Advantages: Salary sacrifice may reduce your taxable income, potentially lowering your tax bracket, Medicare Levy, or helping you qualify for certain concessions.
- First Home Super Saver Scheme: Up to $50,000 of salary sacrifice contributions can be withdrawn for a first home purchase.
- Maintains SG Contributions: Your employer’s regular SG contributions remain unaffected by your salary sacrifice arrangement.
Important Considerations
- Reduced Take-Home Pay: Sacrificing part of your income means you’ll have less money for immediate expenses, which could be challenging if you’re on a tight budget.
- Limited Access to Funds: If you’re not a first-time homebuyer, super contributions are generally locked until retirement (age 60 or later). Ensure you have sufficient savings outside of super for emergencies or short-term needs.
- Contribution Caps: Concessional (pre-tax) contributions are capped at $30,000 for 2024–2025. Exceeding this cap may result in additional tax.
- No Tax Deductions on Salary Sacrifice Contributions: Since salary-sacrificed contributions are made with pre-tax income, they are not eligible for tax deductions.
- Lower Income Considerations: If you earn under $45,000 annually, salary sacrifice may not be as beneficial due to the already low tax rate on your income.
If you’re considering salary sacrifice to super, don’t hesitate in contacting Dymond, Foulds and Vaughan to ensure it aligns with your financial goals and circumstances.