Salary-sacrificing into super

ATO
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With employer agreement, an employee can ‘sacrifice’ part of their salary or wages into a variety of benefits, including super.

If an employee salary-sacrifices into super, their employer make super contributions to the fund on their employee’s behalf. There may be benefits for both parties, but the arrangement must comply with the rules for salary sacrificing.

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Employee’s benefits

  • The employee’s assessable income is reduced by the amount sacrificed – that is, the amount sacrificed is not subject to PAYG tax and is not declared as income by the employee.
  • The contributions are taxed in the super fund at the concessional rate of 15%, which is usually less than the employee would pay if they took the money as salary.

But there are limits to how much super can be contributed in a year – any contribution over the relevant cap amount is subject to extra tax.

Employer’s benefits

  • Salary sacrifice super contributions are not fringe benefits (and therefore are not subject to fringe benefits tax).
  • The contributions are tax deductible.

To get these benefits, the contributions must be made under an ‘effective salary sacrifice arrangement’ to a complying super fund.

Note: From 1 January 2020, employers will be required to pay super guarantee on your employee’s ordinary time earnings (OTE) base, which is the sum of the employee’s OTE and any amounts which would have been OTE, had they not been sacrificed into a complying super fund or RSA. Employers cannot use the reduced salary. Employers will also not be allowed to count any amount salary sacrificed to super by their employees towards their SG payment obligations.

Reporting salary-sacrificed amounts

If an employer makes super contributions under a salary-sacrifice arrangement or make extra super contributions to a super fund for an employee, they may need to report those contributions on their employee’s payment summary.

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Last modified: 27 Feb 2020
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