Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value.
One example of a salary sacrifice arrangement is to have some of your salary or wages paid into your super fund instead of to you.
If your employer makes super contributions for you through a salary sacrifice agreement you should be aware how these contributions will affect your super balance.
From 1 January 2020, salary sacrificed super contributions will not:
reduce the ordinary time earnings 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 in order for them to avoid the super guarantee charge.
Salary sacrificed super contributions are classified as employer super contributions, rather than employee contributions. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this tax rate is less than your marginal tax rate.
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.
If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit.
If you are deciding whether you should salary sacrifice some of your income into your super, or if you are already salary sacrificing, you can get more information or check your entitlements under the Fair Work Act 2009.
The Fair Work Commission regulates employment agreements and conditions. To check your conditions contact Fair Work Commission.
The Fair Work Ombudsman has information on deducting pay & overpaymentsExternal Link. You can phone the Fair Work Ombudsman on 13 13 94.
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, you should also consider whether the amount you wish to salary sacrifice:
will cause you to exceed your concessional (before-tax) contributions cap and attract additional tax – this concessional contributions cap limits the amounts that can be contributed to your super fund and still receive the concessional tax rate of 15%
will attract Division 293 tax – this occurs when your income (including concessional super contributions and other components) is more than:
$300,000 in one year, before 1 July 2017
$250,000 in one year, from 1 July 2017.
Once you have used up your concessional contributions cap, you can still make after-tax contributions. The annual limit for these contributions is $110,000 but you can potentially contribute up to $330,000 using the bring-forward rule. These rules can be complex, especially if you already have a relatively high super balance.
For more superannuation information, contact us today on Phone 03 9038 9449. We can help you understand what contributions you can make to your super whilst staying within the limitations.
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/.
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