With your agreement, an employee can ‘sacrifice’ part of their salary or wages into a variety of benefits, including super.
If an employee salary-sacrifices into super, you make super contributions to the fund on your employee’s behalf. There may be benefits to both of you, but the arrangement must comply with the rules for salary sacrificing.
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Employee’s benefits
The employee’s assessable income is reduced by the amount sacrificed – that is, the amount sacrificed is not subject to PAYG tax and is not declared as income by the employee.
The contributions are taxed in the super fund at the concessional rate of 15%, which is usually less than the employee would pay if they took the money as salary.
But there are limits to how much super can be contributed in a year – any contribution over the relevant cap amount is subject to extra tax.
Your benefits
Salary sacrifice super contributions are not fringe benefits (and therefore are not subject to fringe benefits tax).
The contributions are tax deductible.
To get these benefits, the contributions must be made under an ‘effective salary sacrifice arrangement’ to a complying super fund.
Note: From 1 January 2020, you will be required to pay super guarantee on your employee’s ordinary time earnings (OTE) base, which is the sum of your employee’s OTE and any amounts which would have been OTE, had they not been sacrificed into a complying super fund or RSA. You cannot use the reduced salary. You will also not be allowed to count any amount salary sacrificed to super by your employees towards your SG payment obligations.
Reporting salary-sacrificed amounts
If you make super contributions under a salary-sacrifice arrangement or make extra super contributions to a super fund for an employee, you may need to report those contributions on your employee’s payment summary.
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