Salary sacrifice is when you make additional contributions to your super from your pre-tax salary. These pre-tax contributions can help reduce your taxable income, meaning you can potentially pay less tax.
Once you have worked out how much of your income you can comfortably contribute to your super, you need to arrange for your employer to regularly redirect this amount to your super instead of your bank account.
This portion of your income is generally taxed at just 15%, which can be less than your normal marginal tax rate – helping you save money for your retirement.
It’s important to keep in mind that there are caps on the amount you can contribute to your super. In the 2016 Federal Budget, the government proposed a number of changes to contributions caps including:
- Pre-tax (concessional contributions) cap reducing to $25,000 from 1 July 2017, regardless of age.
- After-tax (non-concessional contributions) made after 7.30pm AEST 3 May 2016, subject to a lifetime cap of $500,000. This includes all after-tax contributions made since 1 July 2007.