What is salary sacrifice?

When you make a sacrifice, you’re usually giving up something now to gain something later.  Salary sacrificing into your super fund is no different—you’re giving up money that would otherwise be in your take-home pay. But in return, you’re boosting the amount you have in retirement and saving (a lot!) on tax.

Under the current rules, you can arrange to put extra cash into your super from your before-tax salary and it will only be taxed at 15% (or 30% if you earn $250,000 a year or more) which is a considerable tax saving for most people on their usual marginal tax rate.

What do we mean by before-tax salary?  As an employee, your gross salary is not the amount you take home each pay period. Income tax, superannuation, HECS-HELP and other deductions are made before you get your take-home pay.  Your before-tax salary is what you earn before all the relevant taxes and deductions are paid.

The benefits of salary sacrifice

Let’s say you earn $90,000 per year (before tax).  Your taxable income plus the Medicare levy would work out to be around $66,953 per year or $2,575 fortnight.

As part of a salary packaging scheme with your employer, you sacrifice around $60 a fortnight or around $1,500 per annum from your take home pay (after tax) as an extra contribution to your super.  This yearly salary sacrifice before tax would be around $2,097.  Paying the concessional tax rate of 15%, an extra $1,782 would be paid into your superannuation.

Ultimately, the $60 that you decide you don’t need for your living expenses could either amount to a $1,782 boost to your superannuation.

(Note that the above figures don’t consider the deficit levy, HECS/HELP debt that you may have or any tax offsets you may be eligible for).

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