What are before-tax contributions?
Before-tax or concessional contributions are contributions added to your super account before deducting your income tax. These are generally taxed at 15% when added to your super account instead of your marginal income tax rate, which can be as high as 45% - saving you up to 30% on tax.
What are the before-tax (concessional) contributions caps?
Each financial year, there are limits on how much you can add to your super. These contribution caps vary based on your age, your total super balance, and whether the contributions are before-tax (concessional) or after-tax (non-concessional).
For concessional contributions, the caps are:
2024/25 annual cap (all ages, any balance):
- $30,000
+ Carry forward rule
What is Salary Sacrifice?
Salary sacrifice is a strategic way to boost superannuation by diverting part of your pre-tax salary directly into your super account rather than receiving it as take-home pay. This arrangement with your employer can help you save on income tax and boosts your long term balance. Salary sacrifice helps you pay less tax in three ways:
- Lower tax rates: Contributions via salary sacrifice are taxed at a concessional rate of 15%, significantly lower than the marginal tax rates that can go up to 45% (plus the Medicare levy) for take-home pay.
- Decreased taxable income: Each dollar sacrificed to your super reduces your income, potentially placing you in a lower tax bracket.
- Lower tax on earnings: Super investment earnings are generally taxed at a maximum of 15%, whereas investments outside super are taxed at your marginal rate. Super investment earnings don't need to be included in your tax return.
How to set up salary sacrifice
If salary sacrifice is right for you, speak to your employer, who can direct some of your pay into your super. If your employer doesn't allow salary sacrifice arrangements, you can make an after-tax contribution & then claim a tax deduction.
Questions for your employer:
- Will your employer allow you to sacrifice your salary for super?
- Are you able to start or stop at any time?
- Can you change amounts at any time?
- Does your employer charge an administration cost?
- Does your employer set any limits to how much you can sacrifice in your salary?
If salary sacrifice isn't available through your employer, you can consider making after-tax contributions and possibly claiming a tax deduction for these contributions.
Salary sacrifice limitations
When setting up your salary sacrifice, you should consider whether the amount you wish to salary sacrifice will:
- Cause you to exceed your concessional (before-tax) contributions cap and attract additional tax – the concessional contributions cap limits the amounts that can be contributed to your super fund and still receive the concessional tax rate of 15%.
- Attract a Division 293 tax. This occurs when your income and concessional contributions exceed $250,000.
Frequently asked questions about Salary Sacrifice
Pre-tax contributions, also called salary sacrifice super contributions, are made from your income before income tax is deducted. These go directly into your super account and can help reduce your taxable income. In contrast, after-tax personal contributions are made from your take home pay, with no immediate tax benefit.
If you’re a high income earner, salary sacrificing into your super fund can be highly tax effective. By lowering the pay on your income through salary sacrifice arrangements, you can pay less tax - as salary sacrifice super contributions are generally only taxed at 15%, which is usually significantly lower than most people’s marginal tax rate.
Yes, but it’s often less than you'd expect. While your take home pay might be slightly lower, the tax effective nature of salary sacrifice super contributions means you pay less tax. The long-term growth in your super account could outweigh the small reduction in your take-home pay, especially if you're aiming to grow your super and build a stronger retirement balance.
Through a consistent salary sacrifice arrangement, you make extra contributions into your super account in a tax effective way. Over time, this helps you build a larger balance for retirement. These contributions are taxed at 15%, which can be much lower than your marginal tax rate - helping you pay less tax while you grow your super.
Yes. Your salary sacrifice super contributions are added to your super fund, where you can select investment options aligned with your goals. Choosing the right investment mix is essential to grow your super and make your super account work smarter for your retirement. With legalsuper, you can also invest in a Direct Investment Option where you have greater control over your super by selecting from a range of listed shares, Exchange Traded Funds (ETFs), and Term Deposits—helping you tailor your investments to your personal financial goals.
Contributing before the financial year ends, especially through a salary sacrifice arrangement—can help you reduce your taxable income and stay within your contribution caps. This is a great way to manage your income tax and pay less tax while boosting your retirement savings.
Salary sacrifice super contributions are pre-tax and generally processed through your employer, helping you reduce your taxable income.On the other hand, personal contributions are made from after-tax income and may qualify for tax offsets. Both contribute to your super account, and using them together can help you make extra contributions toward your retirement.
While traditional salary sacrifice arrangements aren't available to those who are self-employed, they can still make personal contributions to their super fund and claim tax deductions. This way, they can benefit in the same way by lowering their income tax and making tax super contributions to build their retirement savings in a tax effective way.
