Salary Sacrifice

 

The term salary sacrifice is most often used to describe situations where salary earners ask their employer to direct some of their salary into the super fund, rather than receiving it themselves. 

The benefit of salary sacrifice is that the salary earner gives up less in after-tax benefits than they have remaining in the super fund after that fund has paid its tax. This happens because contributions into super are taxed at just 15%, but the income that the salary earner has sacrificed would be taxed at a higher rate if he or she received it directly. 

For example, a person paying income tax at 30% will save 15% of every extra dollar that they sacrifice into super. If the person sacrifices an extra $10,000, then they only give up $7,000 of spending power. This is because that $10,000 would have given rise to $3,000 in tax. But the $10,000 will only give rise to $1,500 tax if it is received within the super fund, meaning that the fund is left with $8,500. This means that the ‘sacrificer’ has given up $7,000 in spending power but acquired an asset worth $8,500. 

You can read more about salary sacrifice here

The Dover Group