Superannuation salary sacrifice: Save tax and save for retirement

Salary sacrifice means to trade part of your before tax wages or salary and to apply these earnings for another purpose.

The most common salary sacrifice items include:

  • Superannuation
  • Motor vehicles
  • Laptops
  • Mobile phones for primarily business use

The above are the most popular salary sacrificed items but why should we consider doing this?  The above all have one thing in common, they are either exempt from Fringe Benefits Tax (FBT) or, as in the case of motor vehicles, are concessionally valued for FBT. A recent change in the FBT rules has dramatically reduced the tax effectiveness of motor vehicle salary sacrifice and this now provides only a marginal tax benefit.  Superannuation, Laptops and mobile phones have long been fully exempt from FBT.  Mobile phones need to be used primarily for business to qualify whereas no such test applies to laptops.

The big ticket item for salary sacrifice is superannuation. Why? Because it provides you with a tax concessional way to save for retirement.

Here is an example:

You are earning $100,000pa and have capacity to salary sacrifice $15,000 into superannuation.  By doing so you save $5,775 in personal tax meaning that the weekly effective reduction in your pay packet is $177 and not the full $288 that is sacrificed.  However, sacrificed superannuation contributions are taxed at 15% so the full tax advantage of the salary sacrifice is $3,525.  This tax advantage is applied to your superannuation fund and will increase the amount of your invested funds.

As always, you should discuss the appropriateness of this strategy with your accountant and financial adviser before entering into a salary sacrifice arrangement.