Are you trying to save a little more and boost your superannuation account using a provision called ‘salary sacrifice’? The bad news is that even if you are, you might not be getting the benefit.
That’s because a legal loophole means your boss can use your salary sacrifice effort as part of your normal superannuation contribution and effectively pocket the difference.
Salary sacrifice is a simple process and it works like this: the law stipulates that your boss has to pay the equivalent of 9.5 per cent of your salary into your super fund; a payment known as the Super Guarantee (SG).
If you want to put a little more away you can make arrangements with your boss to take an agreed amount out of your salary and direct it to your super fund. You obviously have to do without it until retirement, but there’s a hidden sweetener in the deal.
Your salary gets taxed at your marginal tax rate, anywhere from 19 per cent plus the 2 per cent Medicare levy, to a maximum of 49 per cent, depending on how much you earn. But super contributions get paid at only 15 per cent.
So if you salary sacrifice, you move your tax rate on the money you save from your top marginal rate to 15 per cent.
If your salary happens to be just over the cut-off point for one of the marginal tax rates, you could even push your rate down by reducing your take-home pay through salary sacrifice. (That’s just for the bit that is above the cut-off, not for your whole income, as your salary is taxed at the various tax bands through to your top marginal rate.)
To participate in salary sacrifice you have to make a special arrangement with your employer, who will withdraw the extra from your salary. It’s not available to everyone as a lot of small businesses find it too complex and won’t do it.
Employees could miss out
But new research from Industry Super Australia (ISA) shows that employees could be missing out on as much as $1 billion in salary sacrifice payments because of the loophole mentioned above.
“The law allows salary sacrifice contributions to be counted as part of employer contributions,” said Phil Gallagher, retirement policy advisor with ISA. “If you make salary sacrifice arrangements, the employer can reduce the super guarantee payment by that amount.”
That effectively means the employer is pocketing your salary sacrifice contribution and you are worse off by that amount. While most employers don’t do this, it is a glaring loophole in the system and the Labor opposition says it will be a focal point of a Senate inquiry into unpaid superannuation entitlements early next year.
A government spokesman said the Australian Tax Office is currently reviewing unpaid super.
How much can you salary sacrifice?
The amount you can salary sacrifice is essentially the difference between the 9.5 per cent SG and concessional contribution caps. The latter are $35,000 a year for those 50 and above and $30,000 for others. Next year they will come back to $25,000 for everyone.