Salary sacrifice or Government super co-contribution - what are the options for your super?

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1 July 2020 (updated annually)

The super co-contribution was introduced in 2003 to help low to middle income earners save for their retirement. Over the years, however, the eligibility criteria has been expanded to provide a greater benefit for a greater number of people. As a result, many people are reassessing the way they make contributions to their super.

Salary packaging (also known as salary sacrificing) not only helps to boost your superannuation savings but reduces the amount of tax you pay as well.

Salary sacrifice?

A salary sacrifice strategy allows you to make contributions to your super using pre-tax money. The benefit of this is twofold; not only do you boost your super by making additional contributions but, for income tax purposes, your taxable income is reduced by the amount you sacrifice to super, which could result in a lower tax bill. And, depending on the amount you choose to sacrifice, you could even drop down a tax bracket. Tax on super contributions made using a salary sacrifice strategy is calculated at the concessional rate of a maximum of 15 per cent, so you also have more to invest.

Don't exceed your limits

The standard concessional contribution limit is $25,000 per person per annum. This cap may be higher where there is a carry forward unused cap amount available. See below 'Carry forward concessional contributions' for more details. Your employer's 9.5 per cent super guarantee contributions are included as concessional contributions. This is an important point to note if you are considering a salary sacrifice strategy as you don't want to exceed the limit, otherwise you may incur an excess contributions charge.

Carry forward concessional contributions

From 1 July 2018, if a person’s concessional contributions in an income year are less than the standard concessional contribution cap, they can carry forward the unused cap amount for up to five income years. From 1 July 2019, where the person’s total super balance is less than $500,000 as at 30 June in the previous financial year, they may use their accrued unused concessional contributions cap in addition to the current year’s cap.

Or super co-contribution?

To be eligible to receive a co-contribution from the Government you must first meet the eligibility criteria and, if you earn less than $54,837 and make after-tax contributions to your super, you could qualify. It's that easy.

If you earn less than $39,837 and make an after tax contribution to super of $1,000, you could be eligible for the maximum super co-contribution of $500 from the Government.

The co-contribution amount reduces by 3.333 cents for every dollar of income over $39,837 and phases out completely once you earn $54,837.

Eligibility criteria

To be eligible for the superannuation co-contribution you must satisfy the following requirements:

  • be eligible to contribute to superannuation and be aged less than 71 at the end of the relevant financial year;
  • make a personal non-concessional (or after tax) contribution to a complying superannuation fund by 30 June of the relevant financial year;
  • earn 10% or more of your total income from carrying on a business, eligible employment or a combination of both;
  • have total income less than $54,837;
  • lodge a tax return for the relevant financial year (including completing the Government super contribution labels);
  • not hold a temporary resident visa at any time during the financial year (exceptions apply);
  • have a total super balance below $1.6m as at 30 June of the previous financial year; and
  • must not exceed your NCC cap for the relevant financial year.

So, which is better?

The answer depends on your individual situation and circumstances, but the tables overleaf illustrate the difference between a salary sacrifice strategy and a personal contribution strategy utilising the Government's super co-contribution, under a number of salary scenarios.

You cannot however, use a salary sacrifice strategy to reduce your income to a level that allows you to qualify for the Government's super co-contribution.

It's important to consider a change in strategy would have tax, Centrelink or family tax benefit implications. Your financial adviser will provide advice that is suitable for you and your situation.

Taxable income = $30,000 Salary sacrifice strategy Personal contribution strategy utilising Government's super co-contribution
Gross amount contributed additionally $1,176 $1,176
Income tax @ 21% after-tax contribution  0 $247
Super tax @ 15% pre-tax contribution $176 0
Net member contribution to super $1,000 $929
Super co-contribution $464
Low income super contribution* $176
Total super contribution $1,176 $1,393
Taxable income = $40,000 Salary sacrifice strategy Personal contribution strategy utilising Government's super co-contribution
Gross amount $1,176 $1,176
Income tax @ 34.5% 0 $406
Super tax @ 15% $176 0
Net member contribution to super $1,000 $770
Super co-contribution $385
Total super contribution $1,000 $1,155
Taxable income = $50,000 Salary sacrifice strategy Personal contribution strategy utilising Government's super co-contribution
Gross amount $1,176 $1,176
Income tax @ 34.5% 0 $406
Super tax @ 15% $176 0
Net member contribution to super $1,000 $770
Super co-contribution $161
Total super contribution $1,000 $931

The total for these tables does not include SG.