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Salary Sacrificing Super: How Does It Work?
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Salary Sacrificing Super: How Does It Work?

Nadia Chapman

Nadia Chapman

25/03/2021 • 4 minute read

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Salary sacrificing super doesn’t have to be difficult. During the COVID-19 pandemic, many Aussies took money from their superannuation.

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Did you know?

Figures from Australian Prudential Regulation Authority (APRA) showed that 3.4 million Australians have accessed their super early since April 2020.

As a result, many want to contribute money back into their super, which is the act of salary sacrificing.

Below, we’ll go over salary sacrificing into super including what it is, how it works, and how much you can contribute. We’ve done all the groundwork to find out all the nitty-gritty on salary sacrificing, so you don’t have to.

What is salary sacrificing super?

Salary sacrificing is an arrangement with your employer to forgo part of your wages for a mutual benefit. For example, having some of your wages paid into your super fund instead of your take home pay.

Once you’ve come to an agreement with your employer about salary sacrificing, it’s important to understand how this can affect your super fund. Since 1 January 2020, the Australian Tax Office (ATO) has stated that salary sacrificed super contributions will not:

  1. Reduce your ordinary time earnings;
  2. Count towards the overall amount of your employer’s super guarantee contributions.

This means that there are no limitations on your ordinary earnings while sacrificing salary. This is because the ATO classify these super contributions as employer (rather than employee) contributions.

What are the limitations of salary sacrificing super?

There can be certain limitations that you should consider before entering a salary sacrifice agreement with your employer. The two major limitations include:

  1. The amount you wish to sacrifice may exceed your concessional contributions, meaning you will have to pay additional tax, OR
  2. You will have to pay Division 293 tax if your contributions are greater than $250,000 in one year

It’s safe to say that the average Australian earner won’t experience the latter, however, it’s always something to consider.

How does salary sacrificing super work?

If you believe that salary sacrificing into super is the right option for you, it’s important to understand how the entire process works.

The first step is to make sure your employer offers salary sacrificing in the first place. You’ll need to confirm this with the payroll team as not all places of work offer this type of arrangement.

If this is something they offer, the next step is to figure out how much you want to sacrifice and how regularly. This is an important part of the process, especially if you don’t have set hours or shifts and your pay isn’t consistent. You also can’t sacrifice a salary that has already been paid into your bank account. So, it’s best to act fast if you know there is a large chunk of change you want to put away for retirement.

The last step is to notify your employer of your decision and get an agreement in writing. You can easily do this by talking to someone in the payroll team, and from there, they’ll be able to set up everything. The agreement will allow you full control of your rights, and you’ll be able to check that the contributions are going into your super account.

How much can you salary sacrifice into super?

As an employee receiving regular wages, your employer must contribute 9.5% of your ordinary time earnings to your super fund. This is what the ATO calls the super guarantee that we mentioned earlier.

If you’ve decided to grow your super fund with extra contributions, then you should know that there is a limit on how much you can contribute. The contributions to your super fund must not exceed more than $25,000 per year. The payments include the overall 9.5% contributed by your employer as well. These payments, known as concessional contributions, are also taxed at 15%, which should be lower than your average tax rate.

Generally, if you earn more than $37,000 per year, contributing extra to your super fund could benefit you, as you will pay less tax while growing your retirement savings.

Things to be aware of

Before you commit to long-term contributions, know that the value of your super may fluctuate from time to time. This may happen depending on a range of factors, but it’s mostly because of market conditions. It’s important to remember this and consider how much you want to risk when you contribute to your super fund.

Another aspect to be aware of is that contributing to a super fund is essentially a long-term investment. This is because you cannot access your funds until you are between the age of 55 and 65 or retired. However, there are special circumstances that may allow you to access your super fund early, as we now know with COVID-19.

What if I am self-employed?

You can still contribute to a super fund if you are self-employed. If you already have a super fund and are transitioning from employee to self-employed, all you have to do is send over your Tax File Number to your super fund, and they do the rest.

You can either send contributions as regular amounts or lump sums, depending on your circumstances. A good rule of thumb to follow is to contribute 10% of any payments made to you as super payments. The limits to contributions are the same as employee contributions.

So that’s salary sacrificing in a nutshell. Sign up to our newsletter to learn more about super and all things finance.

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Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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Nadia Chapman

Written by Nadia Chapman

Nadia Chapman is a contributing Writer at Oiyo. She has a Bachelor of Communication, (double major in Journalism and Public Relations) from Griffith University. Nadia currently works as a freelance community journalist, where she writes for several print-first publications. As a freelance writer, she writes at the crossroads of health and community for local and international online publications.

More about Nadia Chapman

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