Super salary sacrifice

Superannuation. A key part of most Australians nest egg for retirement.
Superannuation. A key part of most Australians nest egg for retirement.

A SALARY salary sacrifice arrangement is an arrangement under, which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer providing benefits of a similar value.

The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay fringe benefit tax, where applicable, on the benefits provided. 

Salary sacrifice presumes the existence of an employment relationship.

Fringe benefit tax is not payable on superannuation contributions that are made for the purpose of the employee.

With regard to salary sacrificing into superannuation the salary sacrifice arrangement involves an employee agreeing to reduce part of his or her gross income in return for which the employer makes a contribution to a superannuation fund on the employee's behalf.

Generally these contributions will be tax deductible to the employer, but should the contributions exceed the concessional contribution cap that applies to the employee, the employee will have excess concessional contributions.

These amounts will be added to the employee's assessable income and taxed at their marginal tax rate (less 15%) plus an interest charge.

Thus while there is no statutory cap on the amount the employer can obtain for a deduction in respect of an employee's superannuation, there is a practical limit in the form of the additional tax the employee would have to pay on concessional contributions that exceed the concessional contributions cap. 

From the employee's view, instead of the amount being taxed at the marginal rate, say 32.5% plus Medicare Levy if received as salary, it will only be taxed at the rate of 15% when it is paid into the superannuation fund.

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