Salary sacrifice has a double benefit

Because of the way tax is applied to superannuation, savvy employees can turn what would have been a tax liability into extra super through salary sacrifice. Many workers can, by agreement with their employer, have money paid into their super fund from their salary before income tax is taken out, and it will be taxed in the hands of the fund at 15%.

These amounts will escape being taxed at your marginal rate, which in most cases will be more than the 15% levied on the fund.

As an example, Michael earns an annual salary of $90,000 (excluding the super guarantee). If he makes before-tax contributions to his super fund of $10,000 through salary sacrifice, not only will he significantly boost his retirement savings but will save $1,950 in tax. This scenario is based on the 2023-24 income year tax rates and Medicare levy of 2%.

Of course, in the no-salary-sacrifice scenario, Michael has higher take-home pay. But with salary sacrifice there is less tax and more super- a very handy annual boost to Michael’s super fund. He would need to ensure his total super contributions (including the compulsory SG) stay under the contribution cap of $27,500.

Credit: Article ‘Salary sacrifice has a double benefit’ from Money Magazine ‘Best of the best 2023.’