Paying into your super from your before-tax pay could be a tax-effective way to grow your retirement savings.
Info sheet - July 2022
Salary sacrifice is where you agree to receive part of your remuneration in some form other than salary. In the case of super, you could forego some of your before-tax pay and have your employer pay that amount directly into your Brighter Super account.
By putting money into your super this way, you reduce your taxable income, accumulate more money for when you need it later in life and potentially take home more pay.
Salary sacrificed super contributions are taxed at 15%, which is generally less than your marginal tax rate (which could be as high as 47% including the Medicare levy). This means money going into your super account from your before-tax pay is taxed less than it normally would be if paid to you as income. By salary sacrificing your super contributions from your before-tax pay you lower your taxable income and could bring home a little extra each pay day.
If your total annual income exceeds $250,000, Division 293 tax of an additional 15% applies to any before-tax (concessional) super contributions. This means you pay 30% tax on concessional contributions instead of the standard 15%. See our Superannuation tax info sheet for more information.
A concessional contribution is any money you and your employer pay in to your super and includes:
There is a limit to the amount of concessional contributions you and your employer can contribute to your super each year. Everyone has a concessional contributions cap of $27,500 for the current financial year. If you exceed the cap you could pay higher tax. Read our Contribution caps info sheet for more information.
When deciding if salary sacrifice is right for you it’s worth keeping in mind that if you are between 18 and 74, you could qualify to claim a tax deduction for any personal contributions you pay into super. These contributions count towards your concessional contributions cap. Read our Tax deduction for personal contributions info sheet for details.
It’s important to check with your employer to determine if any employment benefits you currently receive that are based on your salary could be reduced under a salary sacrifice arrangement, including your employer’s superannuation guarantee contributions. To protect your benefits, it’s important you talk to your employer about the potential impact and get a detailed, written agreement in place that clearly shows how these payments will be calculated.
A before-tax super contribution isn’t a fringe benefit and is not subject to fringe benefits tax. It will be reported on your PAYG payment summary as a reportable employer superannuation contribution and may impact your eligibility for government provided benefits.
Salary sacrificed contributions do not qualify for the Australian Government’s super co-contribution of up to $500 each year. If your total annual income is less than $57,016 and you meet other eligibility requirements it could be beneficial for you to make after-tax contributions instead of (or in addition to) salary sacrifice. See our Super support for low and middle income earners info sheet for more information.
You can salary sacrifice any standard member contributions you are required to pay. You can also salary sacrifice extra amounts to your super. Keep in mind, salary sacrifice contributions count towards your annual concessional contributions cap, along with any money your employer contributes and any contributions you claim a tax deduction for.
A 15% contributions tax will be deducted from salary sacrifice contributions. To offset the contributions tax and maintain the same net amount that you add to super you will be required to increase your member contribution if you choose to make these through salary sacrifice.
See the table (below).
|Brighter Super members who need to increase||Standard member contribution||Salary sacrifice standard member contribution|
|Brisbane City Council, Queensland Urban Utilities and other associated employees||5%||5.8825%|
|Defined Benefits Fund members||6%||7.05882%|
|Members with a Defined Benefit account (former City Super)||5%||5.8825%|
For local government employees with an Accumulation account who are required to contribute 6%, the salary sacrifice contribution does not need to be increased. However, it’s important to understand that if 6% is salary sacrificed, the net amount added to super will be reduced by the 15% contributions tax.
It’s important to invest in your future and superannuation enjoys tax advantages that can make a considerable difference when you start saving. To see the difference a little extra into your super each pay can make to the amount you have when you retire, try our Retirement income calculator and Contributions optimiser, available from the Resources section of our website.
LGIAsuper Trustee (ABN 94 085 088 484) (AFSL 230511) (the Trustee) as trustee for LGIAsuper (ABN 23 053 121 564) (RSE R1000160) (the Fund) trading as Brighter Super. Brighter Super products are issued by the Trustee on behalf of the Fund. Brighter Super may refer to the Trustee or LGIAsuper as the context may be.
This info sheet provides general information only and does not take into account your individual objectives, financial situation or needs. As such, you should consider whether it is appropriate in light of your own objectives, financial situation and needs prior to making any decision. You should consult a licensed financial advisor if you require advice which does take into account your personal financial circumstances. You should also obtain and consider the Product Disclosure Statement (PDS) before making any decision to acquire any products. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the PDSs and TMDs at brightersuper.com.au/governance.