Contributing extra to your superannuation is a good way to boost your retirement funds.
One of the ways you can add more to your super is through salary sacrificing. 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.
Salary sacrificing your super means your employer will redirect some of your salary or wages into your super fund instead of to you.
These salary sacrifice contributions are taxed at a maximum rate of 15 per cent, which is generally less than your marginal tax rate. The sacrificed amount will not be considered a fringe benefit if the super contributions are made to a complying super fund.
There is no limit to the amount you can salary sacrifice (provided there are no limitations in your terms of employment); however, you must be wary of the concessional (before-tax) contribution cap. If you go over the cap, you may have to pay additional tax.
Keep in mind, the salary sacrificed amounts count towards your concessional contributions cap, in addition to your employer’s contributions (i.e. compulsory employer contributions).
Generally, excess contributions will be included as taxable income, taxed at your marginal tax rate plus an excess contributions charge. Note, that your age may affect the concessional contributions cap, how the cap applies and what options you may have.
Individuals should also consider whether the amount sacrificed will attract Division 293 tax. This tax applies when you have an income and concessional super contributions of more than $300,000, or over $250,000 from 1 July 2017. Division 293 tax levies 15 per cent tax on taxable contributions above this threshold.
If you do choose to salary sacrifice into super, remember contributions don’t count when the payment is sent, only when it is received by your fund. Make sure your fund receives all your contributions by 30 June.