Salary sacrifice (often included as part of your salary packaging) occurs when you, as an employee, agree to forgo an amount of your salary pre-tax in return for an equal amount to be contributed to your super by your employer. Salary sacrificing reduces your cash salary and accordingly the amount of income tax assessed on your salary. Employers are able to claim a tax deduction for amounts salary sacrificed on behalf of employees. Amounts salary sacrificed into super are classified as a concessional contribution.
The reduction to your gross salary (salary before tax), is the amount salary sacrificed.
Amounts that are salary sacrificed into a super fund attract a 15% contributions tax when they are paid into super. People with income and concessional contributions totalling more than $250,000 will pay an additional contributions tax of 15% (called Division 293 tax) on some or all of their concessional contributions. For people on low incomes (under $37,000) the first $500 of this tax will be refunded back into their account via the Low Income Superannuation Tax Offset.
How much you can salary sacrifice is limited by contribution caps which we will discuss later. Where the amount salary sacrificed into super exceeds the contribution cap, the excess amount is included in the assessable income of the member and taxed at their marginal tax rate. However, the member will be entitled to a 15% tax offset to compensate for the 15% contributions tax already paid by the super fund. If you don’t withdraw the excess concessional contribution, it will count towards your non-concessional contributions cap.