How does salary sacrifice into super work and what are the benefits?

Salary sacrifice (also called salary packaging) into super is an arrangement where you agree with your employer to redirect a portion of your pre-tax salary into your superannuation fund. This is in addition to the compulsory super guarantee contributions your employer already makes.

How it works:

• You arrange with your employer to contribute an additional amount from your pre-tax salary to your super fund
• The sacrificed amount reduces your taxable income, so you pay less income tax
• The contribution is taxed at 15% inside the super fund (or 30% if your income exceeds A$250,000)

Example of tax savings:

If you earn A$90,000 and salary sacrifice A$10,000 into super:

• Without salary sacrifice: A$10,000 taxed at your 30% marginal rate = A$3,000 in tax
• With salary sacrifice: A$10,000 taxed at 15% in super = A$1,500 in tax
• You save A$1,500 in tax

Important considerations:

• Salary sacrifice contributions count towards your A$30,000 concessional contribution cap (including your employer's SG contributions)
• The arrangement must be set up before the work is performed. You cannot salary sacrifice income already earned.
• Salary sacrifice may affect your HECS-HELP repayments. Your repayment income includes reportable employer super contributions, so large salary sacrifice amounts may still trigger HECS repayments.
• It may also reduce your income protection insurance and leave entitlements if these are calculated on your reduced salary

Always check your total concessional contributions to avoid exceeding the cap.