Many employers provide their employees with the opportunity to receive part of their salary in a form other than cash. This is known generally as salary packaging and such arrangements have the potential of providing tax benefits. Depending on your employer, you can salary package items such as motor vehicles, childcare, laptop computers and superannuation.

The most popular form of salary packaging is into superannuation. Salary sacrifice superannuation, as it is commonly known, is simple and one of the few employer benefits that does not attract fringe benefits tax.

Why should I consider salary sacrificing into superannuation?
Salary sacrificing into superannuation allows you to accumulate wealth for your retirement in a tax effective way. It works like this. Normally salaries are subject to tax at your marginal tax rate. This could be as high as 46.5%, including Medicare levy. When you salary sacrifice, a contribution is made into superannuation from your gross salary. That is, the contribution is made from your salary before tax is deducted. This means that your taxable income is reduced, which provides you with a tax saving.

When the contribution is received by the superannuation fund, it will be taxed at 15%. Thus if your taxable income exceeds $30,000, you will save tax!

This is best illustrated by an example. Bob’s salary is $90,000 pa. The difference in his tax position from salary sacrificing $10,000 pa. into super, is detailed below:

In Bob’s case, making a salary sacrifice superannuation contribution results in a tax saving of $2,650. In addition, he has contributed $8,500 towards his retirement savings.

What are the disadvantages of salary sacrificing?
Whilst salary sacrificing can offer substantial benefits, there are some pitfalls that you need to be aware of.

Preservation
Firstly, salary sacrifice contributions are “preserved”. This means you are generally unable to withdraw the money from superannuation until you reach your preservation age and have permanently retired from the workforce. Depending on when you were born, your preservation age could be as high as 60 years old.

Reduced take home pay
Secondly, whilst salary sacrifice can offer tax advantages, it means that you will receive less “take home pay”. You must be certain that you can continue to meet your ongoing financial commitments if you start salary sacrificing.

Contribution limits
Thirdly, salary sacrifice contributions count towards your concessional contribution limits. All employer superannuation contributions, including superannuation guarantee and salary sacrifice and personal deductible, if applicable, count towards your concessional contribution limit of $50,000 p.a. ($100,000 p.a. if you were 50 or over). If concessional contributions exceed the relevant limit, the excess is taxed at 46.5% instead of 15%. Excess concessional contributions also reduce your non-concessional contributions limit.

Are there other ways to put money towards superannuation?
Not all employers have an arrangement whereby employees can salary sacrifice into superannuation. If you are in this situation, you may still contribute money into super from your after-tax earnings as non-concessional contributions. These contributions do not attract a tax deduction. Non concessional contributions are limited to $150,000 p.a. however, in certain circumstances; this limit may be $450,000 over a three year period. You may consider making a super contribution on behalf of your spouse.

It is important, however, that any salary sacrifice contributions are made in consultation with a financial planner who will help to weigh-up the factors and determine if salary sacrifice into superannuation is a suitable strategy for you.