When you salary sacrifice to superannuation, you and your employer agree to earmark a portion of your salary for your employer to contribute to your super fund. This will reduce your take home pay, but it will also decrease your tax so you may not “miss out” on as much as you first thought. As with anything, there are advantages and disadvantages.
The upside
The advantage of this arrangement for middle to high-income earners is that these savings are taxed at only 15% (the superannuation contributions tax). If you invest with after tax dollars you have already paid tax on that income at your marginal tax rate (up to 47% including Medicare levy), so you have less available to put into super. Remember too that investment income within superannuation is taxed at a maximum of only 15% so your money grows faster there.
Another advantage is that it's an excellent form of “forced savings”. What you don't get in your hand, you can't spend!
Be aware of this downside
With salary sacrificing, your taxable income is your gross income less the amount that you salary-sacrifice. This is the salary on which your leave payments and superannuation guarantee payments are made. If you are still salary sacrificing just before you retire you may find that your unused long service leave and holiday leave are paid at the taxable income rate rather than the gross rate. This could lead to a much lower payment and could negate the benefits of your salary sacrificing.
To ensure you are making the right decision for your circumstances, seek professional financial advice first.
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