Salary sacrifice is an arrangement between you and your employer, whereby you agree to forgo part of your before tax salary and contribute it to your super. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this amount of tax is less than what you would pay if you did not enter into a salary sacrifice agreement and instead were subject to PAYG withholding tax on your earnings.
However, the concessional tax treatment is limited to a set amount of contributions made each income year.
For the 2009-10 income year, the concessional contributions cap is $25,000. This amount is the total of all before tax contributions and is indexed each year. However, for the 2008 to 2012 financial years, a transitional contributions cap of $50,000 (per person, per year) will apply to individuals aged 50 and over on the last day of the relevant financial year. Where concessional contributions exceed these caps, excess concessional contributions tax is payable at a rate of 31.5% (this is on top of the 15% tax already paid by the fund). Excess concessional contributions tax is payable by the individual.
To avoid paying a higher rate of tax on your super contributions, you should ensure that your salary sacrificed amount and any other concessional contributions to your super fund, such as additional employer super guarantee payments or employer payments above the super guarantee, do not exceed the cap amount.
Salary Sacrifice is available at your employers discretion, so you will need to check to see if it is available.