Some employees may choose to boost their super savings by choosing to take less salary in cash and diverting the balance, pre-tax, into super.
There can be tax advantages in this strategy, however these will depend on the employee’s particular circumstances. For example, advantages diminish significantly if the employee earns less than $35,000 a year (based on 2009/2010 tax rates). It is at this level that employees move out of the 15 per cent tax bracket to the 30 per cent tax bracket.
To be effective, salary sacrifice arrangements must be prospective and apply to future and not past earnings.
The salary sacrifice cannot include annual or long service leave that has been accrued before entering into the arrangement.
If an employee wants to sacrifice pay for higher super contributions, you and the employee should clearly state and agree on all the terms of the sacrifice arrangement and keep a written record of the arrangement.
However, SG and salary sacrifice contributions from all employers over $25,000 in a year may result in the employee having to pay excess contributions tax of 30 per cent, plus Medicare levy, in addition to the standard contributions tax of 15 per cent. If the employee is age 50 or more at the end of one or more of the financial years 2009/2010 to 2011/2012 inclusive, a transitional cap of $50,000 applies for the relevant year(s). The transitional cap will then revert back to $25,000 from 1 July 2012 (this figure will be indexed).
It is legally possible for you to calculate your employees' SG entitlements net of salary sacrifice contributions.
Example of salary sacrifice
Belinda earns $45,000 a year from her job as a personal assistant. She wants to sacrifice $10,000 of that salary into her super fund to boost her employer’s contribution of $4,050. This is the amount her employer would have had to pay based on her pre-sacrificed salary amount.
An employer would be able to claim a tax deduction of $49,050, consisting of salary paid plus the 9 per cent super contribution. Belinda would have a gross total contribution of $14,050, but would pay 15 per cent tax on this contribution, leaving her with a net amount of $11,942.50 in her super.