Author: Ryan O’Grady, Financial Planner at Navigate Financial Group

What is Salary sacrifice?

Salary sacrifice is simply an arrangement with your employer, where you agree to forego part of your future salary or wages in return for your employer providing benefits of a similar value.

This article will specifically focus on extra contributions made into your superannuation fund however you are also able to package fringe benefits such as cars, health insurance and school fees although these may be liable for fringe benefits tax.

What are the benefits?

[list-ul type=”square”][li-row]You may be able to reduce income tax liability[/li-row][/list-ul]

[list-ul type=”square”][li-row]Increase super savings through extra contributions[/li-row][/list-ul]

What things need to be considered?

[list-ul type=”square”][li-row]Cash-Flow – You should only put away an amount of money that you feel comfortable with[/li-row][/list-ul]

[list-ul type=”square”][li-row]Contributions caps – These are the limits of before tax contributions allowable to be made into super.[/li-row][/list-ul]

[list-ul type=”square”][li-row]Restrictions around accessing super funds – once the money goes into super you may have to wait until retirement until you can access the money.[/li-row][/list-ul]

[list-ul type=”square”][li-row]Employer’s agreements to set up the arrangement – Not all employers allow salary sacrifice due to the extra administration requirements. You will need to check with your employer planning such an arrangement.[/li-row][/list-ul]

Should I salary sacrifice?

This question should always relate back to your current financial position, your overall retirement goal and any other financial goals you may have.

You need to prioritise your goals to ensure that the money that you may wish to put away into super cannot be better used to achieve other goals. This is where financial planning can really assist with ensuring that any strategy does not contain conflicting goals. Sometimes you may not be able to have everything.

A common rule of thumb is allocating between 10% and 20% of all income towards long term savings. This amount will vary quite a bit depending on a person’s age, their required income in retirement etc. Given that all employees in Australia have 9.5% of their income being paid into a super fund, many people will need to have another form of long term savings to ensure that retirement goals are met.

The following example below is based on the following information:

  • Client Age:            35
  • Income:                 $75,000
  • Super Balance      $50,000
  • Risk Level             Balanced
  • Retirement           Age 70

The client is happy to put $100/week from their take home pay. See below table for calculations:

Table 1

Salary Sacrifice Table 1







Table 2 – No Salary Sacrifice

Super Contributions 9.5% of $75,000 = $504/month (after 15% contributions tax)
Salary Sacrifice Table 2











Table 3 –$100/week salary sacrifice

Super Contributions 9.5% of $75,000 = $504/month (after 15% contributions tax)

Salary Sacrifice $100/week = $562.34/month (after 15% contributions tax)

Salary Sacrifice Table 3











(Note: Calculations were completed using the calculator and do not take into consideration possible product or advice fees. The figures used are just an example and should not be used for any personal assessment. The calculator can be found at the following link ) The above  example  is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.

As you can see by the client forgoing $100/week from their take home pay, at age 70 will have an extra $899,378, the majority of this come through the extra interest earned!

Now let’s turn to the client’s income tax. Table 1 above shows that the clients personal income tax reduces from $17,422 down to $14,683 (an annual tax saving of $2739/year) Table 4 shows an overall net position increase of $1548 each year simply by redirecting money into a more tax friendly environment.

Table 4

Salary Sacrifice Table 4






In summary, salary sacrificing a portion of your income may be an extremely tax effective way for many people to improve their long term savings. Before making extra contributions into super always make sure that you are aware of all points of consideration and that the contributions best meet your goals. If you are unsure or unclear of what strategy to implement, always seek professional advice from a financial adviser.

Ryan O’Grady

Financial Planner

Authorised Representative, AMP Financial Planning

Navigate Financial Group Pty Ltd (ACN 128 056 002), is an authorised representative and credit representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee

‘This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning Pty Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.’



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