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A valuable sacrifice:
Salary sacrificing super contributions

Salary sacrifice is an arrangement between you and your employer where you agree to forego part of your future salary or wages (e.g. that which is yet to be earned) in return for benefits of a similar value:

  • super
  • car fringe benefits, and
  • expense payment fringe benefits, such as
    • —   school fees
    • —   child care costs, and
    • —   loan repayments.

Employers are not obliged to offer salary sacrifice arrangements. You should ask your employer if they do so and what you will need to do to assist. An employer may charge an administration fee to implement salary sacrifice arrangements.

Benefits of salary sacrificing super contributions include

  • Salary sacrificed contributions made to a complying super fund are not considered a fringe benefit for tax purposes. Your employer:
    • —   will not be liable to pay fringe benefits tax (FBT) on them, and
    • —   won’t need to include them as a reportable fringe benefit amount on your payment summary.
  • If you are under 75, your employer can usually claim a tax deduction on salary sacrificed contributions made on your behalf.
  • The sacrificed component of your total salary package is not assessable income for taxation purposes, not included as income on your payment summary, and is not subject to PAYG withholding tax.
  • Super contributions through a salary sacrifice agreement are taxed at only 15% (maximum).

Salary sacrifice limits

Depending on the terms of your employment, there may be no limit to the amount you can salary sacrifice.

However, salary sacrificed contributions form part of the super fund’s concessional contributions taxed at the low rate. There is a cap on the amount of concessional contributions for each person for each income year.

Concessional contributions also include:

  • your employer’s contributions under the super guarantee, and
  • any additional contributions your employer makes on your behalf.

To avoid paying a higher rate of tax on your super contributions, ensure that your salary sacrificed amount and any other concessional contributions to your super fund do not exceed the cap amount.

It may be possible for you to make salary sacrifice super contributions for your spouse, however the tax implications are less favourable for both you and your employer. Contributions such as these are a fringe benefit. Your employer is liable to pay FBT on the amount, and your payment summary includes the amount as a reportable fringe benefit.

An effective arrangement

By making super contributions under an effective salary sacrifice arrangement, there are benefits for both you and your employer.

The key is good communication between you and your employer, clearly documenting the agreed arrangement, and thorough record-keeping by both parties.

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