Maximise your super: how salary sacrificing into your super works

What is salary sacrificing? 

Salary sacrificing is an arrangement between yourself and your employer to exchange part of your salary for a benefit of a similar value. Salary sacrificing into super is the opportunity to boost your retirement savings by choosing to have some of your before-tax income paid into your super account rather than into your bank account.This is on top of what your employer might pay you under the super guarantee, which is 12% of your earnings, if you’re eligible. 

While salary sacrificing might reduce your take-home pay, it will also supercharge your retirement savings, while potentially reducing how much you pay in tax. 

If you’re thinking about setting up a salary sacrifice arrangement, here’s what you need to know.

How much can I contribute through salary sacrifice?

Provided you don’t exceed the concessional super contributions cap of $30,000, how much of your salary you sacrifice into your super is up to you. 

You can also decide how often you do it, whether it’s a one-off payment or something you can afford to do regularly. 

What happens if I exceed the concessional super contributions cap? 

If you exceed the $30,000 cap, penalties will apply. It’s important to note that contributions made into your super as part of a salary sacrifice arrangement aren’t the only contributions that count toward the super cap.

Other contributions that count toward your concessional contributions cap typically include:

• All employer contributions from all employers, including compulsory contributions your employer pays under super guarantee or award requirements.

• Contributions you make using after-tax dollars which you choose to claim a tax deduction for. 

What are the potential tax benefits of salary sacrificing into super?

Salary sacrificing into super reduces your before-tax income, meaning you may be able to reduce what you pay in income tax for the financial year.

That’s because contributions made via a salary sacrifice arrangement are only taxed at 15% if you earn under $250,000 a year, or 30% if you earn $250,000 or more a year, with most people generally paying more tax on their income than they do on salary sacrifice contributions.

There could also be further tax benefits as investment earnings made inside the super environment also benefit from an equivalent tax saving, which could make a difference when you eventually withdraw your super savings and retire.

How do I set up a salary sacrifice arrangement?

If you’ve decided that salary sacrificing into super is right for you, here’s how to get it set up.

Make sure your employer offers salary sacrifice

You will need to confirm with your payroll team at work that your employer offers this type of arrangement. If not, you may be able to achieve broadly the same benefits by claiming a tax deduction on contributions you may choose to make using after-tax dollars, but you’ll need to consider whether this is right for you. 

Decide how much, how often and when you want to salary sacrifice

You might want to salary sacrifice on an ongoing basis, or as a one-off. Also, you can’t salary sacrifice income that you’ve already received, such as a bonus or leave entitlements, so you’ll need to act well before this money is paid into your regular bank account if you want to salary sacrifice it. You can see how much salary sacrificing into your super can impact your take home pay and super balance using AMP’s Salary Sacrifice Calculator.

Notify your employer and get any agreement in writing

If your employer offers salary sacrifice (and once you know how much, how often and when you want to do it), contact your payroll team at work to find out what information they need. Then ask them to confirm in writing when your contributions will start being paid, so you can check that the contributions are being received into your super account. 

Make sure you don't exceed the concessional contributions cap

Be sure to keep on top of how much you’re contributing into your super, so that you don’t exceed the cap. If you do exceed the cap, additional tax and penalties may apply. If you’re an AMP Super customer, you can set up notifications in My AMP to let you know when you’re nearing your limit. Remember, the cap applies to all concessional contributions, whether they’re made into one or more super accounts.

It’s also worth noting that in addition to your annual cap, you may also be able to contribute unused cap amounts accrued in the previous five financial years. However, you will need to check first to see if you’re eligible. This broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year. You can view your unused cap amounts on my.gov.au.

Are there any other things I should be aware of?

The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.

The government sets rules about when you can access your super. Generally, you can access it when you’ve reached your preservation age (60 years old) and you retire.

Find out about other ways you can contribute into super.

Everyone's different, so if you’re thinking about setting up a salary sacrifice arrangement, consider your circumstances and whether it’s the right thing for you.