Look at you go you little saver! Checking out how much you can salary sacrifice into super. You should be very proud of yourself!
Instead of being lured in to fast cars and fancy restaurants, you’ve decided to take the more prudent approach and focus on saving towards retirement.
Well, if you’re willing to put in the hard yards so that you can enjoy a comfortable retirement, then let’s buckle-up and get started. We’re going to tackle this together.
How Much Can I Salary Sacrifice Into Super?
The amount you can salary sacrifice into super is calculated as the difference between the concessional contribution cap and your employer superannuation guarantee (SG) contributions.
What Is The Concessional Contribution Cap?
The concessional contribution cap for the 2023/24 financial year is $27,500 per person.
You may have the ability to contribute more than your concessional contribution cap in any one year by utilising unused carried-forward portions of the concessional contribution cap from previous years. Specifically, any portion of the contribution cap that you did not use from previous financial years (beginning of 2018/19), will be carried forward for five-years. You can utilise all or some of the carried forward amounts in a financial year, provided your total super balance at 30 June of the previous financial year was less than $500,000.
You can check your MyGov account for your carried forward amounts, or speak to your super provider.
What Are My Employer SG Contributions?
Your employer SG contributions are the mandatory contributions that must be made by your employer into your superannuation account on at least a quarterly basis.
The current SG contribution rate for the 2023/24 financial year is 11% of your wage, up to the maximum contribution base. For example, if you earn $70,000 per year, your SG contributions would be $7,700 in addition to your wage.
Learn more about employer super contributions.
Salary Sacrifice Limit – Example
Let’s assume that you are 57 earning $70,000 per year and therefore are receiving employer SG contributions of $7,700 for the year.
The concessional contribution cap is $27,500. This means you can salary sacrifice a total of $19,800 throughout the year into super, which is the difference between the concessional contribution cap and your SG contributions ($27,500 – $7,700).
If you had cumulative unused carry-forward amounts of, say, $15,000 from previous financial years and your balance was below $500,000 on 30 June 2023, then your contribution cap of $27,500 would effectively increase to $42,500 ($27,500 + $15,000), allowing you to salary sacrifice $34,800 ($42,500 – $7,700) for the 2023/24 year.
This video shows how much you can contribute to super each year:
Read more: Salary Sacrifice Limits
What Happens If I Contribute More Than $27,500 into Super?
If your salary sacrifice contributions cause you to exceed the concessional contribution cap in any one year, the excess amount (only) will be assessed as income and taxed at your individual tax rate.
You will also have the option to withdraw the excess from super or not. If you do not withdraw the excess from super, it will count towards your non-concessional contribution cap. If this happens, it is important to ensure that this does not cause you to exceed the non-concessional cap, because excess non-concessional contributions are taxed at the maximum individual tax rate, which is currently 45%, plus Medicare.
Salary Sacrifice Disadvantages and Risks
Some things to consider when salary sacrificing into super include:
- Any amount contributed to super is not accessible until you meet a superannuation condition of release.
- All salary sacrifice contributions are taxed at 15% upon entering your super account – known as contributions tax. Up to an additional 15% is payable for very high income earners (>$250,000 income).
- You should check your superannuation account transaction history to ensure that your employer is fulfilling their obligation to pay all SG contributions and salary sacrifice contributions into your super account.
Read more: What Age Can I Access My Super?
Is It Worth Salary Sacrificing Into Super?
If you have surplus income and you don’t expect to need the funds until retirement, then salary sacrificing into super can be very beneficial.
Here’s an example of how salary sacrificing can benefit you. Again, we will assume you earn $70,000 p.a.
|2023/24 FY||Standard (no salary sacrifice)||Maximum Salary Sacrifice|
|Tax On Income||$14,617||$7,539|
|Salary Sacrifice Contributions Tax||$0||$2,970|
|Total Tax Payable||$14,617||$7,539|
|Benefit Of Salary Sacrificing||$4,108|
The example above shows a net benefit of $4,108 in one year by maximising your salary sacrifice contributions.
Obviously, you need to make sure that the reduced net income amount is still sufficient to cover your living expenses and isn’t going to leave you short.
In addition to the immediate tax benefit, any amount contributed to super will presumably be invested and all investment earnings within a super accumulation account are taxed at a maximum of 15%, compared to being taxed at your marginal tax rate if invested in your personal name.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
Read more: Benefits of Salary Sacrificing Super
Salary Sacrifice Calculator
Calculate how much you can salary sacrifice by using this calculator.
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