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 per cent, 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. Following changes made in the 2016 Federal Budget, these include:
- Pre-tax (concessional contributions) cap has been reduced to $25,000 from 1 July 2017, regardless of age.
- After-tax (non-concessional) contributions have been capped at $100,000 a year from 1 July 2017. If you’re under age 65 any time during a year, you’re able to apply the ‘bring-forward’ rule. This allows you to make up to three years’ worth of non-concessional contributions totaling $300,000 at any point during a three-year period.