Salary Sacrifice

Salary sacrifice is a strategy that allows you to increase your super contributions and potentially save on tax.

Here’s how it works:

• You agree with your employer to reduce your pre-tax salary by a set amount.
• This sacrificed portion is then directed towards your superannuation fund instead of being paid to you directly.
• Since the sacrificed amount is deducted before tax, your taxable income goes down. This translates to a lower tax bill.
• Your employer then contributes the sacrificed amount, along with their mandatory Super Guarantee (SG) contribution, into your super fund.

Benefits of Salary Sacrifice:

• Boost Your Retirement Savings: Salary sacrifice allows you to contribute more towards your super, significantly increasing your retirement nest egg.
• Tax Savings: By reducing your taxable income, salary sacrifice lowers your tax obligation. This can put more money in your pocket each pay cycle.
• Compounding Interest Advantage: The earlier you start contributing to super, the more time your money has to benefit from compounding interest. Salary sacrifice allows you to leverage this growth potential.

Things to Consider:

• Lower Take-Home Pay: Since a portion of your salary is diverted to super, your take-home pay will decrease. Ensure you can comfortably manage your living expenses with the adjusted income.
• Contribution Caps: There’s a limit (currently $27,500 per financial year) to how much concessional super contributions (including salary sacrifice and employer contributions) you can make before tax.
• Impact on Benefits: Salary sacrifice might affect certain means-tested government benefits or salary-linked entitlements like car allowances.

Making Salary Sacrifice Work for You:

• Do the Math: Calculate the potential tax benefit and how much your super will grow with salary sacrifice.
• Talk to Your Employer: Discuss your salary sacrifice interest and negotiate a suitable arrangement.
• Choose the Right Amount: Consider your current and future financial needs when deciding on the salary sacrifice amount.
• Review Regularly: As your income or circumstances change, it’s wise to re-evaluate your salary sacrifice arrangement.

Salary sacrifice can be a powerful tool to grow your retirement savings and potentially save on tax. However, it’s crucial to understand the implications before making a decision. Consulting a financial advisor can help you determine if salary sacrifice is the right strategy for your individual circumstances.