You can ask your employer to pay some of your salary, before tax is taken out, straight into your super. This is separate from your employer’s normal contribution (that’s the ‘compulsory super’, that employers must pay). Salary sacrifice is your own extra contribution, your employer is just paying it on your behalf.
Salary sacrifice could also reduce your income for tax purposes, meaning you’ll pay less tax. That’s because the money your employer takes out of your salary and puts into your super is taxed at 15%. Compare that to the marginal tax rate, which can be anything up to 47% (including the Medicare levy) depending on how much you earn.
The salary sacrifice option will work for your if your income is high enough that you’re paying more than 15% tax on your overall income, and you won’t miss the money out of your pay. If you’re a low-income earner, you might find that after-tax contributions are the better option.
Most employers do offer salary sacrifice, but not all. So do check with your employer to see whether it’s available to you.
After-tax contributions are also sometimes called non-concessional contributions, or personal contributions. Basically, you choose to pay an amount into your super from your after-tax income or savings. You can do this at any time, either as a regular transfer or a one-off payment from your bank account.
Adding to your super fund when you have some extra cash on hand means when you reach retirement, you’ve got more savings to retire with. Think of it as a very secure savings measure. Even small amounts added now can make a big difference to your super in future, because your super is earning interest for that whole time.
And, because you’ve already paid tax on your income, after-tax contributions are not taxed again when you deposit them into your super account. You might also be able to claim a tax deduction on these contributions, to reduce the amount of tax you pay in a financial year.
Those tax deductions and extra contributions sound great, but please know that if you claim a tax deduction for your personal contributions at tax time, your contributions will change from after-tax to concessional (before-tax) and that means they are subject to contributions tax, at a rate of 15%, and will count towards your yearly $25,000 cap on before-tax contributions.
“I’m 45, and I’m a child care worker earning $32,000 a year. I make a $1,000 post-tax contribution to my Vision Super account. When I put in my tax return, the ATO make an additional co-contribution of $500 to my Vision Super account. I didn’t need to do anything except make the contribution and lodge my tax return – simple! The ATO and Vision Super took care of the rest.”
This is a great way to support your spouse who may be on a low income without much super being saved or may have lost a job or taken a break from work, for example to look after kids. It’s an investment in a loved one’s future and will ease both your lives in retirement. A spouse is the person you’re legally married to, or in a de facto relationship with (including same sex relationships).