Weighing up salary sacrifice vs. after-tax contributions


Few Australians will achieve a comfortable retirement relying solely on superannuation funded by compulsory employer contributions.

By making your own voluntary contributions, you can help build your retirement nest egg in a tax-advantaged environment. Remember, super investment earnings are taxed at a maximum of 15%, a lot lower than most people’s marginal tax rate.

Knowing how to make your own contributions can be tricky – through salary sacrifice or via after-tax contributions? Here we explore the options.

Contribution type Salary sacrifice After tax

• You arrange with your employer on an ongoing basis to take less pay home and have the difference put directly into your super

• You contribute from your own money either regularly or sporadically. It’s easy using the BPAY® number you were given on joining VISSF – or ask for it by contacting our Client Services Team.

Potential benefits

• You get more super working for you, because it is taxed at just 15% contributions tax, not marginal tax rates (see Tim’s story below)
• Because it’s a pre-set commitment, you don’t get distracted by using the money for other things

• You can determine how regularly you contribute
• You may be entitled to a government co-contribution of up to $500, depending on your income
• No contributions tax is deducted (provided you do not exceed contribution limits)

Might suit who?

• Particularly those earning over $37,000

• Low income earners entitled to the government co-contribution
• Those who want to contribute windfalls such as an inheritance or tax return for example

If you’re not sure which approach suits your needs, try out the interactive super contributions optimiser tool at moneysmart.gov.au/tools-and-resources/calculatorsand-tools/super-contributions-optimiser – or ask a financial adviser.

Important note: The Government places limits on how much individuals can contribute to super each year, without tax penalties. You should make sure your super stays within the caps – see vissf.com.au/contributing-to-super.

Tim’s story

If Tim sacrifices $5,000 to super from his $85,000 salary, he will pay $750 contributions tax instead of $1,925 income tax, giving him $1,200 more to invest.

With salary sacrifice Without salary sacrifice
Gross salary $80,000 $85,000
Salary sacrifice $5,000 $0
Income tax (including Medicare levy) $19,147 $21,097
Contributions tax $750 $0
Net benefit (take home pay plus salary sacrifice) $65,103 $63,903

You asked…

Q. I made some after-tax contributions to my super account. Does this mean I’ll get a government co-contribution?

A. It depends on your annual income. In 2014/15 the maximum government co-contribution value is $500 for a $1,000 personal contribution. This amount decreases on a sliding scale for those on incomes above $34,488 and ceases for incomes of $49,488 or more.

If you are entitled, you don’t need to do anything. As long as we have your Tax File Number, the Australian Tax Office will pay it to your VISSF super account automatically.

This article was taken from the Spring 2014 edition of VISSF Super Views:
Click here to download the full newsletter.

Image Source: John Fischer (edited), Creative Commons 2.0

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