Making voluntary super contributions is a great way to boost your retirement nest egg. When you salary sacrifice into super you may also be able to reduce the amount of tax you pay.
Salary sacrifice is an arrangement between you and your employer where a portion of your pre-tax salary is used to provide benefits of a similar value. This may include things like cars, computers, school fees and super contributions.
A salary sacrifice to super is where you and your employer agree to pay a portion of your pre-tax salary as an additional concessional contribution to your superannuation account. This is typically a tax-effective strategy if you earn more than $37,000 a year. Depending on your income and how much you are willing to contribute to super, a mix of concessional and non-concessional may be your best option.
If you decide to salary sacrifice into super you will need to ask your employer to redirect a portion of your pre-tax pay to your super fund. Like your employer superannuation guarantee (SG) contributions, salary sacrificed contributions are taxed at a rate of 15% when they are received by the fund. For most people this will be much lower than your marginal tax rate which is why they are known as ‘concessional contributions’.
Super contribution limits changed on 1 July 2017. For more details go to the Australian Tax Office (ATO) website.
Concessional contributions include your employer’s 9.5% super guarantee contributions and your own salary sacrificed contributions. The combined total of these cannot exceed $25,000 each financial year. For more details see the ATO’s information on key superannuation rates and thresholds.