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Salary sacrifice can be a tax-effective way of topping up your Rest super account. Contributions are typically taken out of your pay before income tax is deducted. These before-tax contributions reduce your taxable income so you may pay less tax, and have more money to put towards your retirement. So if you'd like to top-up your super, ask your employer to arrange a salary sacrifice contribution for you. If they don't offer this, you could consider making after-tax contributions instead.
What are the tax benefits?
Tax benefits of salary sacrifice can include:
- The amount you salary sacrifice to super is only taxed at 15%* rather than your personal tax rate, up to the limit of $25,000 per year for the 2018-19 tax year (providing your income is under $250,000 pa)
- If your Australian tax rate is higher than 15%, then you'll benefit from the lower tax rate on the amount you salary sacrifice.
Contributions cap
The government limits how much you can contribute before-tax. If you contribute too much, you may have to pay extra tax. These contribution limits are known as contribution caps.
The caps for 2018-19 financial year on before-tax contributions for any age is $25,000 per year (including Superannuation Guarantee contributions made by your employer).
Catch up your contributions
From 1 July 2019, if your super balance is less than $500,000, you’ll be able to contribute over this cap by using any unused cap amounts that you build up from 1 July 2018. This is called a ‘carry forward’ contribution’.
Say you make a before-tax contribution of $15,000 in 2018-19. This means you’ll have an unused cap amount of $10,000 for that financial year. So in 2019-20 you’ll be able to make a carry forward before-tax contribution of $35,000 (the cap of $25,000 plus the unused $10,000 from your previous year’s cap).
Any carry forward amounts you accrue will expire if you don’t use them after five years.
You can keep track of your before-tax contributions online in MemberAccess.
Exceeding the caps
Generally, your before-tax contributions (or concessional contributions) are taxed at 15%. However, a higher rate of tax may be payable if your income and before-tax contributions are more than $250,000 in a financial year.
If you go over the caps, you will pay extra tax equivalent to your marginal tax rate on the excess contributions (less the 15% tax already paid). The excess amount will then be counted as an after-tax contribution. You also have the option of withdrawing the excess amount out of your account. The Australian Tax Office (ATO) will send you information on your options. For more information, visit the ATO website.
* 30% if you earn over $250,000 per year