Salary sacrificing is a smart way for your employees to grow their super and reduce their assessable income tax since the contributions are made before-tax. You can assist them by agreeing to make the additional super payments into their nominated super fund.
For a salary sacrifice arrangement to reduce an employee’s assessable income it must meet the following Australian Tax Office (ATO) requirements for an ‘effective’ salary sacrifice arrangement.
You should seek professional tax advice about the business implications of offering salary sacrifice arrangements for your employees.
Super contributions made under a salary sacrifice agreement need to be reported on the employee’s PAYG payment summary as ‘reportable employer superannuation contributions’. To determine how much of the super contributions you make for your employees are reportable in this way, refer to the ‘Employer guide for reportable employer super contributions’ on the ATO website.
Employers can generally claim all super contributions, including salary sacrifice contributions for current employees as a deduction for tax purposes.
Salary sacrifice contributions are deducted from an employee’s before-tax salary. The contributions are taxed at 15%, so for an employee with a marginal personal income tax rate higher than 15%, salary sacrificing to super can be a tax effective way for them to grow their super.
Employees wishing to enter into a salary sacrifice arrangement should be aware that super is a long term investment and generally cannot be accessed until they permanently finish work or reach preservation age (between ages 55 and 60, depending on date of birth).
Employees should also take care not to exceed their contributions caps as this may result in additional tax and charges applying. For details about the contributions caps visit the ATO website.
Employees should be aware that super contributions and their earnings are preserved, meaning they generally cannot be accessed until their retirement after reaching preservation age. Preservation age is 55 - 60 years, depending on when you were born.
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