Contributing some of your pre-tax salary, wages or a bonus into super could help you to reduce your tax and invest more for your retirement.
How does the strategy work?
With this strategy, known as salary sacrifice, you need to arrange for your employer to contribute some of your pre-tax salary, wages or bonus directly into your super fund.
The amount you contribute will generally be taxed at the concessional rate of 15%¹, not your marginal rate which could be up to 47%².
Depending on your circumstances, this strategy could reduce the tax you pay on your salary, wages or bonus by up to 32%.
Also, by paying less tax, you can make a larger after-tax investment for your retirement, as the case study on the opposite page illustrates
What income can be salary sacrificed?
You can only sacrifice income that relates to future employment and entitlements that have not been accrued.
With salary and wages, the arrangement needs to be in place before you perform the work that entitles you to the salary or wages.
With a bonus, the arrangement needs to be made before the bonus entitlement is determined.
The arrangement, which should be documented and signed by you and your employer, should include details such as the amount to be sacrificed into super and the frequency of the contributions.
Other key considerations
¹ Individuals with income above $250,000 in 2017/18 will pay an additional 15% tax on salary sacrifice and other concessional super contributions within the cap.
² Includes Medicare levy.
SUPER TIP – Simple explanation of super strategies:
The following links are other super tips – click below
Convert your super into a tax-effective retirement income
Top up your income when cutting back work
Make insurance more affordable
Top up your super with help from the government
Convert business capital into tax-free retirement benefits
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It's also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.