Salary Sacrificing vs Personal Contribution to Super

What is Salary Sacrificing?

Salary sacrificing is an employer-employee arrangement that allows you to forgo a set portion of your monthly salary while getting benefits of equal value. The benefits range from voluntary contributions to your Superannuation fund to other goods and services you need.  

Entering a salary sacrificing agreement with your employer may lower your take-home pay. But it also reduces your taxable income since money is deducted from your pre-tax salary.  

The Australian Taxation Office (ATO) regulations don’t restrict the benefits of a salary sacrifice arrangement. Popular options include:  

• Superannuation: You contribute directly to your Superannuation fund.  
• Fringe benefits: You may use the contributions to buy property, repay loans, or finance a vehicle.
• Exempt benefits: You may use the contributions to buy work-related items such as protective gear and gadgets.

What is Salary Sacrificing to Superannuation?

Salary sacrificing to Superannuation entails using your salary to boost your Superannuation fund. It’s a prudent financial move that reduces your taxable income while padding your retirement fund.

Salary sacrificing into a Super account helps you build a sizeable nest egg because it uses pre-tax dollars—which attract a 15% tax rate—to fund your Super account.

For instance, if someone in the 37% tax bracket receives $2,000 in after-tax pay, they’ll only have $1,260 after-tax income deduction. Conversely, salary sacrificing $2,000 into super triggers a 15% tax rate. As such, you’ll contribute $1,700 instead of $1,260—a difference of $440.

How salary sacrifice contributions are treated

Salary sacrifice Super contributions are treated as employer Super contributions, not personal contributions. They count as additional perks to your Super guarantee entitlements, which means your employer pays your Super guarantee in full.

The sacrificed portion of your salary is exempted from Pay-As-You-Go (PAYG) withholding tax. The contributions aren’t classified as a fringe benefit or subjected to fringe benefits tax if made to a compliant Super fund.

Salary sacrifice limitations

There’s no limit to how much salary you can sacrifice into your Super unless stipulated in your employment contract. However, you’d do well to consider the tax implications. If your contributions exceed the $30,000 concessional (before-tax) contribution cap, they may be subject to a 30% taxation rate. If your combined income and concessional super contributions exceed $250,000, they become subject to Division 293 tax.