Salary sacrificing into your super

01 Jul 2023 5 min read

Salary sacrificing into super is potentially an effective way to help you save on tax while increasing your retirement funds. It can sound complex, but the idea is quite simple.

Keep reading to learn how salary sacrificing into your super works, its potential benefits, and how you can arrange it for yourself.

How does salary sacrificing into super work?

Salary sacrifice involves directing a portion of your income to your super, in addition to the usual superannuation contributions made by your employer. Importantly, the salary that you ‘sacrifice’ is taken before it is taxed. That means the reduction in your take-home pay is less than the contribution you make to super. Read our fact sheet Salary sacrifice and save for more detail on how it works.

Salary sacrificing may also help reduce the amount you need to pay in tax over the financial year due to the drop in your before-tax income.

What are the potential benefits of salary sacrifice?

There are several potential benefits to salary sacrificing into your super, including:

  • paying less tax
  • reducing your taxable income
  • boosting your retirement savings.

Pay less tax

The main benefit is the potential to pay less in tax. Money in super is taxed at just 15%.1 The impact on your tax is twofold:

  1. Your salary sacrificed amount will only be taxed in your super fund at 15% as opposed to your marginal income tax rate, which can reach as high as 47% (including the Medicare Levy).
  2. Your taxable income will be reduced by your salary sacrificed amount, meaning you’ll pay less in income tax.

The difference in tax rates will depend on how much you earn — generally, the tax benefits become meaningful for those who earn more than $45,000 a year.

Reduce tax on your investment earnings

Investors will often need to pay extra tax on their earnings. Salary sacrificing into super may help you avoid this. Your super fund pays a maximum of 15% tax on investment earnings, which is generally lower than the tax paid on higher capital gains and investments outside of super.

While making comparisons between types of investments, keep in mind that super is a long-term investment — you won’t be able to access your funds until you meet a condition of release (generally, until you’ve reached a certain age and/or have retired). Find out more about when you can access your super.

Increase your retirement savings

The savings accumulated by your compulsory employer contributions may not be enough to fund the kind of retirement you’d like. Making salary sacrifice contributions will boost the amount you’ll have to fund your future — not just by the dollar amount you contribute, but also the investment returns on that amount. This could make a real difference to your retirement, like the ability to travel instead of staying local.

What should you consider before sacrificing your salary for your super?

Before you arrange salary sacrifice contributions to your super, there are a few important factors to consider.

Your existing debt

Before committing to a salary sacrifice arrangement, you should consider your existing debt levels. Sacrificing your salary into your super means less take-home income to pay off your debts. You should consider how salary sacrifice would impact your ability to make repayments on any debts you have.

Your income

If your annual income is below $18,201, you aren’t subject to income tax, so salary sacrifice won’t be a beneficial tax-effective strategy for you.

For those earning between $18,201 and $45,000, salary sacrificing may provide a small tax benefit as the income tax rate at this threshold is 19%, compared to the 15% on super contributions.

Generally, individuals earning more than $45,000 are most likely to benefit from the tax treatment of salary sacrifice contributions to super.

Your super concessional contributions cap

Your salary sacrificed amounts count towards your super’s concessional contributions cap, meaning you need to make sure that your sacrificed amounts do not make you exceed the limit (currently $27,500 for a financial year). You should note that the contributions your employer normally pays also count towards this cap — it’s important to factor in your current superannuation gurantee contributions so you don’t go over the maximum.

Under the carry-forward rule, you may be eligible to carry forward any unused amount of your concessional contributions cap on a rolling basis for 5 years. For more on how the carry-forward rule works, see our fact sheet Salary sacrifice and save.

How to start salary sacrificing

To start making salary sacrifice contributions, you will need to confirm with your employer and payroll team that they are able to offer this kind of arrangement. If they can, you will need to decide how much and how often you want your contributions made.

Your employer will need your salary sacrifice details in writing. If you are with NGS Super, you can use our online Contribution form and send it directly to your employer.

If you’re unsure how much you should salary sacrifice, consider speaking to a financial planner.

Salary sacrificing resources and tools

Our resources and tools are designed to help you arrange your salary sacrifices, as well as provide you with related information.

Super calculator

NGS Super’s super retirement calculator can help you by estimating your projected super balance at retirement and how long your savings will last you. You can also check the potential difference that salary sacrifice contributions could make to your super savings.

Fact sheets

For a detailed and concise explanation of superannuation salary sacrificing, read our fact sheet Salary sacrifice and save.

Advice services

NGS Financial Planners can help you decide if salary sacrifice suits your circumstances by providing you with tailored financial advice. The first appointment with one of our financial planners is complimentary for NGS members.

Frequently asked questions

What if my employer doesn’t offer salary sacrifice?

You can make personal contributions from your take-home pay instead. To get the same tax treatment, you’ll need to claim a tax deduction on the contributions you make. So, the process differs from an employer-arranged agreement, but the end result is the same. Find out more about claiming a tax deduction on personal super contributions.

Is it a good idea to salary sacrifice super?

The benefits of salary sacrificing into your super depend on your personal circumstances. Before making an arrangement, it is important to consider your income level, current debts, salary benefits, potential tax benefits, and the concessional contributions cap.

How much can I salary sacrifice to super?

Your salary sacrifice contributions are limited by the concessional contributions cap available to you. Remember, you’ll need to factor in your employer contributions to make sure you don’t exceed the cap.

Currently, this cap is $27,500 for a financial year. You may be able to contribute more under the carry-forward rule. Find out more in our fact sheet Salary sacrifice and save.

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