As an employee, you may wish to contribute personally to your superannuation fund. Your employer can make these additional contributions on your behalf as part of your salary package. This method of contributing to superannuation is known as salary sacrifice, and ensures you are contributing in a tax effective manner, as these contributions are made from pre-tax income. Under this arrangement, you forgo or "sacrifice" part of your salary in return for super contributions. These are concessional contributions, as your employer is allowed to claim a tax deduction on these amounts.
Salary Sacrificing comes with some advantages, and some disadvantages, which include:
- Reduce your taxable income: Instead of paying tax on your income at your marginal tax rate, you are paying a maximum of 15% on contributions to your super.
- With a reduction to your taxable income, you may also become eligible for the Government Co-contribution.
- Boosting the balance of your superannuation and therefore helping you attain a more comfortable lifestyle at retirement.
- Contributions will be taxed within your super fund at 15%, and tax may be payable when you withdraw benefits from your fund.
- Salary sacrificing may reduce the amount of Super Guarantee (SG) employer contributions paid by your employer.