Salary sacrifice and Government co-contributions

What is salary sacrifice?

Whilst salary sacrifice has been traditionally used for benefits like cars, car-parking, health insurance etc., another option is to contribute to your superannuation fund.

When you salary sacrifice into super, you enter into an arrangement with your employer to give up part of your before tax salary. In return your employer pays an equal contribution into your super account. This is in addition to the compulsory superannuation guarantee (SG) amount your employer is required to contribute.

What are the benefits?

Using salary sacrifice to increase your superannuation nest egg is an attractive option for some employees as it can provide significant tax advantages.

The amount you salary sacrifice is treated as an employer contribution and is not included in your assessable income or taxed at your marginal tax rate. This may lead to tax savings.

Superannuation contributions which are made through a salary sacrifice arrangement to a complying super fund, are Fringe Benefit Tax exempt.

Salary sacrifice contributions are paid in pre-taxed dollars and are therefore not taxed as income before being placed in the super. Super contributions are taxed at 15 per cent in the Fund, which is lower than most personal tax rates. This means that you will have more dollars working for your retirement savings than would be the case if you made normal member contributions.

Please note, salary sacrifice contributions do not attract a Government co-contribution.

What are Government co-contributions?

Provided you’re eligible and make a personal non-concessional contribution to your super, the Federal Government will put up to $1,000 into your super fund.

The superannuation co-contribution is a Federal Government initiative to assist low and middle-income earners to build their super savings.

To be eligible you must:

make a personal non-concessional contribution to a complying super fund or Retirement Savings Account (RSA)
have total income (assessable income, reportable employer superannuation contributions and reportable fringe benefits less certain business deductions) of less than $61,920 for 2009/10
receive 10 per cent or more of your total assessable income, reportable employer superannuation contributions and reportable fringe benefits from eligible employment, carrying on a business or a combination of both
be less than 71 years of age at the end of the relevant financial year
not be the holder of a temporary visa (with some minor exceptions), and
lodge an income tax return for the relevant year.