Knowing your salary sacrifice super limits not only allows you to reduce your tax, but also ensures you don’t get whacked with any excess contribution tax.
Here’s how you can easily calculate your maximum salary sacrifice super contribution amount for the current financial year.
Salary Sacrifice Super Limits
The salary sacrifice super limits for the 2023/24 financial year are calculated as the difference between $27,500 and your employer contributions received, as well as any personal concessional contributions. However, you may be able to contribute more than the general $27,500 cap by utilising any unused concessional contribution cap from previous financial years.
Salary Sacrifice super contributions are classified as concessional contributions. Your total concessional contributions for a year must be below your concessional contribution cap.
What is the Concessional Contribution Cap?
The general concessional contribution cap is $27,500 per person, per financial year. However, you are able to utilise any unused portion of your concessional contribution cap from the previous five financial years (beginning 2018/19) if your super balance was below $500,000 on 30 June 2023.
Therefore this carry-forward unused cap amount may allow you to salary sacrifice more than the general concessional contribution cap in the current financial year.
What are Employer Super Contributions?
Employer superannuation contributions are mandatory contributions that your employer must make into your super account. These employer contributions will count towards your concessional contribution cap and will therefore limit the amount you are able to salary sacrifice into super.
The amount of employer super contributions received is based on your wage. For most of you, your employer will be required to contribute an amount equal to 11% of your wage into your superannuation account each year. Some of you will receive more than 11% depending on employment or industry agreements.
What are Salary Sacrifice Contributions?
Salary sacrifice super contributions is an amount of your wage you have agreed with your employer to forfeit in exchange for increased super contributions, equivalent to the wage forfeited.
Salary sacrifice contributions are paid directly into your super account by your employer and will also count towards your concessional contribution cap.
What are Personal Concessional Contributions?
Personal concessional contributions are contributions made into your super account from your personal bank account that you have claimed a personal tax deduction for.
Subject to age restrictions and potential superannuation work test requirements, anyone is able to make personal concessional contributions.
To claim a personal concessional contribution as a personal tax deduction, you need to notify your super fund of your intention to claim a tax deduction and subsequently claim the deduction on your individual tax return.
Personal concessional contributions count towards your concessional contribution cap and therefore further limit the amount you can salary sacrifice into super.
What is the Maximum I Can Salary Sacrifice into Super?
The maximum amount that you can salary sacrifice into superannuation is your concessional contribution cap minus employer contributions received and any personal concessional contributions made.
Maximum Salary Sacrifice Super Amount Example
An example of the maximum amount that you can salary sacrifice into superannuation can be calculated using the following formula.
Maximum Salary Sacrifice Amount=General Concessional Contribution Cap plus Eligible Carry-Forward Cap Amount minus Mandated Employer Contributions minus Any Personal Concessional Contributions
For example, if I was an employee on a salary of $90,000 per year, I would receive employer super contributions of $9,900 per year, based on the general superannuation guarantee rate of 11%.
Therefore, assuming I did not make any personal concessional contributions, I would be able to salary sacrifice $17,600 for the year ($27,500 – $9,900).
However, if I also had unused concessional contributions from previous financial years totalling, say, $15,000, and had a total super balance below $500,000 on 30 June 2023, then I would be able to salary sacrifice $32,600 in the current financial year ($27,500 + $15,000 – $9,900).
What Happens if I Salary Sacrifice Too Much?
If you salary sacrifice too much, the excess salary sacrifice amount will be assessed and taxed at your individual tax rate for the financial year, minus a 15% tax offset received to account for the contributions tax paid on the salary sacrifice amounts.
If you exceed the concessional contribution cap, the ATO will issue you with a determination stating how much you exceeded the cap and what your options are. Specifically, you will have the option to withdraw 85% of the excess contribution amount – allowing for a 15% contributions tax. Alternatively, you can leave the excess contributions inside super and this excess amount will count towards your non-concessional contribution cap.
Care should be taken if you decide to leave your excess contributions inside super, because if this excess amount causes you to also exceed the non-concessional contribution cap, the excess non-concessional contribution amount will be taxed at the highest marginal tax rate of 47%.
Salary Sacrifice Calculator
The calculator, below, allows you to calculate the maximum amount you are able to salary sacrifice without exceeding the general concessional contribution limit.
Should I Salary Sacrifice into Super?
Whether you should salary sacrifice into super or not will depend on your specific circumstances and objectives.
Salary sacrificing into super allows you to invest more of your savings into the tax-effective superannuation environment, while simultaneously reducing your personal income tax obligations. However, you need to be comfortable that any amount salary sacrificed will not be accessible until you are eligible to access your super. You also need to ensure your salary sacrifice amounts are within the limits.
Read More: Benefits of Salary Sacrificing
Salary Sacrifice Super Form
There is no single specific salary sacrifice form for putting in place a salary sacrifice arrangement. What is important, though, is that an arrangement is made with your employer to salary sacrifice the amount you wish and that the terms of the arrangement are documented. Your salary sacrifice arrangement can be amended or renegotiated at any time, within the terms of your employment contract.
All salary sacrifice contributions must be made to a complying superannuation fund.
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.
Discover More Content on SuperGuy: