Salary sacrifice integrity measures
February 26, 2020
There has been an important change to the amount of Superannuation Guarantee (SG) contribution an employer is obligated to make on behalf of an employee who salary sacrifices part of their salary or wage into super. From 1 January 2020, employers are required to base the SG contribution on the employee’s pre-salary sacrifice income; and are prevented from using employee salary sacrifice amounts to reduce their minimum SG contribution.
Impact to you
If you are an employee earning $450 or more (before tax) in a calendar month, your employer must make an SG contribution of 9.5% of your salary and wages into super on your behalf.
Previously, if an employee elects to enter into an effective salary sacrifice agreement, the employer could, at their discretion, either:
- reduce the SG obligations by the employee elected salary sacrificed amount; or
- base the SG obligations on the employee’s post salary sacrifice income.
Going forward, salary sacrificed amounts cannot be used to reduce an employer’s SG obligations, regardless of how much and employee elects to sacrifice. The benefits of this change are illustrated in the example below.
- In 2019, Bob is earning $100,000 p.a. (before tax and employer SG contributions). He elects to salary sacrifice $5,000 in that year. His employer calculates an SG contribution based on $95,000 ($100,000 less $5,000) and makes a contribution of $9,025 into super on his behalf.
- In 2020, Bob is still earning $100,000 p.a. (before tax and employer SG contributions). He has maintained the $5,000 salary sacrifice arrangement. His employer can no longer reduce the SG contribution by the sacrificed amount. His employer calculates a SG contribution based on $100,000 and makes a contribution of $9,500 into a super on his behalf. This is an additional $475 into his super even though his salary and sacrificed amount remain unchanged.
If you are currently implementing a salary sacrificing strategy, check that your employer is providing you with your legally entitled SG contribution. Some employers may have to increase their SG contributions amounts for their employees as result of this change.
Your salary sacrifice and employer SG contribution amounts count as ‘concessional contributions’ (contributions paid from your income before tax is deducted).
The Australian Government sets contribution caps to limit the amount an individual can add to their super account in any given year. Therefore, you will need to tally your salary sacrifice and SG contribution amount from your employer together to ensure you remain under the $25,000 concessional contribution cap for the current financial year (subject to any other contribution rules that apply).
A salary sacrifice arrangement and other contributions can help build your super, supporting your desired retirement lifestyle. Speak to a qualified financial adviser to see if it is an appropriate strategy for you.
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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should consider your own financial position, objectives and requirements and seek personalised advice before making any financial decisions.