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The facts about salary sacrifice

 

What is salary sacrifice?

Salary sacrifice is an agreed arrangement with your employer for you to receive part of your gross salary as a benefit rather than as a salary. The value of this benefit is paid from your gross salary, i.e. before tax.

This means that your gross salary is reduced by the cost of the benefit before the income tax is calculated.

Tax savings with salary sacrifice

The most popular form of salary sacrifice is a regular contribution into super from your gross salary.

There are some tax benefits in doing this.

Firstly, sacrificing some of your salary into super reduces your taxable salary. As a result, you may pay less income tax. Secondly, while no income tax is levied on the contribution amount sacrificed out of your salary, tax is levied on this amount when it enters the super fund.

The tax rate on these contributions is 15%1 which is lower than the marginal tax rate for most people. It is your marginal tax rate that determines the amount of any potential tax savings you receive through salary sacrifice.

  Enter your annual income to find out your marginal tax rate for the 2017/18 financial year:

Annual income:

Taxable incomeMarginal tax rate2
0 to $18,200 Nil
$18,200 to $37,000 19¢ for each dollar over $18,200
$37,001 to $87,000 $3,572 plus 32.5¢ for each dollar over $37,000
$87,001 to $180,000 $19,822 plus 37¢ for each dollar over $87,000
$180,001 and over $54,547 plus 45¢ for each dollar over $180,000

Put simply, most people with a taxable income of more than $18,200 can obtain an immediate tax saving by sacrificing part of their salary and contributing that amount into their super.

This is due to their marginal tax rate being higher than the 15% tax on super contributions.

1. The tax rate is 30% if your annual income exceeds $250,000 per annum.
2. Medicare levy of 2% is usually payable in addition to the marginal tax rate, the Government has proposed an increase to 2.5% from 1 July 2019.

The limits on salary sacrifice contributions

There is a cap on the concessional or pre-tax contributions you can make each financial year. It’s important to note that concessional contributions include the super guarantee contributions made by your employer and any salary sacrifice contributions, as well as any other contributions on which you may claim a tax deduction.

The concessional contribution cap is currently $25,000 per annum for everyone regardless of your age.

  Enter your total income to find out approximately how much you will be able to salary sacrifice each financial year:

3. These figures are estimates based on current tax rates and the compulsory SG contribution rate.

Is salary sacrifice for you?

It is important to remember that any salary sacrifice arrangement will reduce your take home pay. However, depending on your level of income, salary sacrifice can be a very tax-effective way to contribute more to your super.

However, incentives for low and middle income earners and the availability of rebates in relation to spouse contributions mean that for some people salary sacrifice may not always be the most tax efficient way to contribute to super.

Ultimately, what’s best for you will depend on your particular circumstances.

To find out what impact salary sacrificing may have on your retirement savings, take a peek into the future with our Retirement Projection calculator.

To find out what impact salary sacrificing may have on your retirement savings, visit lgsuper.com.au/peek to take a peek into the future with our Retirement Projection calculator.

But if you think you may need some information or advice about your super investment, you can call us on 1300 LGSUPER (1300 547 873), between 8.30am to 5.00pm, Monday to Friday.

 

Contact details

Offices
Sydney
 
Newcastle
 
Wollongong
Sydney Level 12,
28 Margaret St
Ground Floor,
12 Perkins St
Shop 2/60 Burelli St

 
Bookings are essential. Phone 1300 LGSUPER (1300 547 873) to make an appointment.
 
Offices in Orange, Parramatta, Tamworth and Wagga Wagga are available by appointment only.
Office hours

Between 8:30am and 5:00pm, Monday to Friday
 
Member Services

1300 LGSUPER (1300 547 873)
 
Mail

PO BOX H290
Australia Square
NSW 1215
Web

lgsuper.com.au

 

This has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321). This document contains general advice only and is not a substitute for personal advice as it does not take into account any individual’s investment objectives, financial situation or particular needs. Accordingly, an individual should seek professional personal advice before making a financial decision.