A salary sacrifice contribution is a pre-tax superannuation contribution that is paid from your gross salary via your employer.
Advantages of salary sacrificing to superannuation:
- The contribution is typically taxed at 15%, instead of being taxed at your marginal tax rate.
- Earnings that accrue on these funds are taxed at a maximum of 15% in the fund.
Limitations of salary sacrificing to superannuation:
- You will be unable to access your contributed funds until you meet a condition of release.
- Any employment benefits you receive may be adversely affected by salary sacrificing. This may include reduced Super Guarantee contributions, life insurance provided by your employer or your employer’s superannuation fund and termination payments, bonuses, and other employment benefits.
- Your concessional contribution limit is $27,500. This includes employer Super Guarantee contributions. If you exceed this the excess amounts are effectively taxed at your marginal tax rate plus an additional tax penalty. If you don’t withdraw the excess amount then these are counted towards your non-concessional contribution limit.
- If your ‘income for surcharge purposes’ plus your ‘low tax contributions’ exceed $250,000 per person in a financial year, then additional tax, known as Division 293 tax, may be imposed at the rate of 15%.