Benefits of salary sacrificing
You and your employer can agree on a salary sacrifice arrangement (also known as salary packaging or total remuneration packaging) to exchange part of your salary or wages for benefits of a similar value.
You can use a salary sacrifice arrangement to have some of your salary or wages paid into your super fund instead of to you. This effectively reduces your taxable income, meaning you pay less tax on your income. These concessional contributions are taxed in the super fund at a rate of 15%, which is generally less than your marginal tax rate.
How salary sacrifice contributions are treated
Salary sacrifice super contributions do not:
- reduce the ordinary time earnings (OTE) that your employer is required to calculate your super entitlement on
- count towards the amount of super guarantee contributions that your employer is required to make.
Salary sacrifice super contributions are classified as employer super contributions, rather than your personal contributions. They are additional to your super guarantee entitlements. Your employer must still pay your full super guarantee as though there was no salary sacrifice arrangement in place.
The sacrificed component of your total salary package is not counted as assessable income for tax purposes. This means that it is not subject to pay as you go (PAYG) withholding tax. However, salary sacrifice super contributions are included in your reportable super contributions and must be included in your tax return.
If salary sacrifice super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit and is not subject to fringe benefits tax.
Salary sacrifice limitations
Unless there are limitations specified in the terms of your employment, there is no limit to the amount you can salary sacrifice into super. However there are tax implications.
Consider whether the amount you wish to salary sacrifice will:
- mean you exceed your concessional (before-tax) contributions cap, which limits the amount that can be contributed to your super fund that is taxed at the concessional rate of 15%
- be subject to Division 293 tax, which applies in respect of your concessional contributions when your combined income and concessional super contributions for Division 293 purposes is more than $250,000.