It’s never too late to grow your super faster by making extra contributions. Even small amounts add up, thanks to the snowball effect of compound interest, and you may end up paying less tax. Read on to find out more about boosting your super through salary sacrifice.

Salary sacrifice explained

Salary sacrifice means adding money to your super from your before-tax pay. This involves you foregoing some of your salary now to make extra contributions to your super. This can have tax advantages as salary sacrifice contributions are a form of ‘before-tax’ or ‘concessional’ contributions and are taxed at 15% rather than your marginal tax rate. This can be a good strategy to grow your super while paying less tax. Before-tax contributions include:

• your employer contributions (which includes the compulsory Super Guarantee that your employer has to pay for you, as well as any salary sacrifice contributions); and

• any personal contributions you make and claim as a tax deduction.

Things to consider

There’re rules around how much you can add to super and still receive a tax benefit. Before setting up salary sacrifice arrangements there are a few things to consider.

• The before-tax contribution cap for the 2021-22 financial year is $27,500. If you go over this limit, any excess contributions will be taxed at your marginal tax rate (which is generally higher than the 15% tax rate on before-tax contributions) and you may have to pay an excess concessional contributions charge. Alternatively, you can withdraw up to 85% of the excess contributions and have the excess amount included in your assessable income and taxed at your marginal tax rate.

• Before-tax contributions may also be taxed at a higher rate if your taxable income plus super contributions for the year exceeds $250,000.

• Be mindful that if you have more than one super fund, all before-tax contributions made to all of your funds are added together and counted towards the cap. You can check how much you’ve contributed to your Mine Super account throughout the year by logging in to your online account.

• Remember to consider any bonuses and pay rises, as these may result in your employer making higher than expected before-tax contributions into your super account.

• If you have less than $500,000 in super and haven’t used all your annual before-tax contribution cap over the previous five years, you can make catch up contributions using unused cap amounts. As this initiative started in the 2018-19 financial year, only three years of catch up contributions can be used in the 2021-22 financial year, with the full five years of catch up contributions available in the 2023-24 financial year. This could especially benefit contractors or people in casual employment, who may not reach their caps during periods when they work less.

Super tip: If you haven’t used all your before-tax contribution cap by the end of the financial year, you can consider topping up your super with a personal contribution from your after-tax money and claim it as a tax deduction. This will convert it into a before-tax contribution, reducing the amount of tax you need to pay, depending on your personal situation.

How to set up salary sacrifice

To set up regular payments into your super you need to ask your employer to add money from your before-tax pay. Check with your employer how to make this request or simply download the Authority to deduct from my pay form, complete it and give it to them to action.