Is it the right time to salary sacrifice?

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 superannuation.

These contributions will almost always be made at the same time your employer makes your superannuation guarantee payments (9% minimum). Alternatively, they could occur at other times if you make that arrangement.

As with anything, there are advantages and disadvantages of salary sacrificing.

The upside

For middle-to-high income earners, the key advantage is that these savings are only taxed at 15% (the superannuation contributions tax), whereas if you invested outside of superannuation, you would pay tax at your marginal tax rate (up to 46.5%). Remember that investment income within superannuation is taxed at a maximum of 15% so your money can also grow faster within super rather than externally.

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 the 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 when 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 all of the benefits of your salary sacrificing.

It’s best to get professional financial advice before making any decisions to ensure you achieve the most effective outcome for your personal situation.