GESB - Salary sacrifice

Salary sacrifice - grow your super and pay less tax

Would you like to grow your super and pay less tax? There is no secret formula - it is quite possible through salary sacrifice contributions.

A salary sacrifice arrangement is an agreement between you and your employer which involves you giving up part of your before-tax salary. This amount is paid into your super account by your employer.

Important points to know about salary sacrifice contributions

Salary sacrificing may affect the amount your employer contributes to your super. You should check with your employer to find out whether their super contributions are based on your full gross salary or your reduced salary.
Contributions made to your super by your employer (including those made through salary sacrifice) only attract a 15% tax, which is much lower than most personal income tax rates.
Salary sacrifice contributions may give you an immediate tax benefit by putting your salary into a lower tax bracket - which means you could pay less income tax.
You can easily start, stop or change your salary sacrifice contribution amount as your situation changes.
The amount you salary sacrifice will be reported by your employer on your annual and part year payment summary. The amount reported may affect your entitlements to certain tax concessions and Commonwealth assistance payments.

How to make salary sacrifice contributions

To enter into a salary sacrifice arrangement, follow three simple steps:

Step 1 - Complete the Super Contributions Payroll Deduction form. A form may also be available through your employer.

Step 2 - Nominate the amount you'd like to sacrifice. It is entirely voluntary and you can adjust it or cancel it at any time.

Step 3 - Hand the form to your payroll office. Remember, salary sacrificing is an agreement between you and your employer, so check that your workplace has a salary sacrifice arrangement in place.

Case Study: Amanda's story

Amanda's annual salary is $70,000 pa and she would like to make a contribution of $100 per week ($5,200 per year) to her GESB Super account.

	No personal super contribution	After-tax personal contribution	Salary sacrifice contribution
Gross income	$70,000	$70,000	$70,000
Salary sacrifice amount	$0	$0	$5,200
Taxable income	$70,000	$70,000	$64,800
Less income tax	$14,850	$14,850	$13,290
Annual after-tax (net) Income	$55,150	$55,150	$51,510
Contributions tax (15%)	$0	$0	$780
After-tax personal contribution	$0	$5,200	$0
Net amount into Amanda's super	$0	$5,200	$4,420
Total take home pay	$55,150	$49,950	$51,510
Total benefit (Income plus super)	$55,150	$55,150	$55,930

These figures (based on tax rates for 2009/10 financial year) include the Medicare levy and should be used as a guide only, not taken as financial advice.

After arranging a salary sacrifice through her employer:

Amanda's super contributions totalling $5,200 per year reduce her after-tax income by $3,640 (which is $55,150 minus $51,510). Her $5,200 annual contribution is deducted from her before-tax income, so Amanda is paying income tax on $64,800 rather than $70,000.
By contributing $100 per week to her GESB Super account, Amanda reduces her income tax by about $30 per week, so her take home pay only reduces by about $70 per week, rather than the value of her $100 super contribution.
By choosing to make salary sacrifice contributions, rather than after-tax contributions or no personal contributions at all, Amanda increases her total benefit by $780.

Amanda also needs to take into account the tax consequences that will relate to her salary sacrifice contributions when she eventually receives her GESB Super benefit. However if she accesses her super once she has turned 60, she will pay no tax.

Grow your super with salary sacrificing

This tutorial will show you how you can grow your super through salary sacrificing whilst paying less tax. This is illustrated with an example that shows the difference in tax and take home pay in three different scenarios; without any voluntary contributions to super, when making after-tax contributions or when making before-tax or salary sacrifice contributions to super.

Start making salary sacrifice contributions today

To find out whether salary sacrifice is right for you, use our Contributions Scenario Calculator.

If you would like to begin making salary sacrifice contributions, complete the Super Contributions Payroll Deduction form and hand it to your payroll office.

Related Information