Many of us use this time of the year to consider options to reduce tax by increasing our contributions to super or salary packaging a car or laptop. This can be a smart option as it can reduce tax, and in the case of super contributions, boost your retirement savings.
But if you are going to salary sacrifice it is important to first check with your employer what their policy is on super guarantee.
By way of background, an employer is required to contribute 9.5% of your ‘ordinary times earnings’ into super. It is the definition of ‘ordinary times earnings’ that is important because it excludes fringe benefits. Salary packaging a $2,000 PC will reduce your earnings by $2,000 and your super by $190.
An employee can also find themselves significantly worse off where they sacrifice to super. While tax of up to 34% can be saved by salary sacrificing, in some cases it may mean losing superannuation support.
Technically, an employer must ensure that 9.5% of an employees ‘ordinary times earnings’ are contributed to super. However, in determining if this obligation has been met, the super that is sacrificed is counted. So, if an employee earning $200,000 sacrifices $20,000 their employer has no obligation to contribute the 9.5%, ($19,000) since the employee has contributed $20,000 already.
While tax of $6,800 has been saved in this example, super guarantee of $19,000 could have been lost.
The message here is to speak to your employer before you salary sacrifice anything to ensure they have a policy in place that protects your 9.5% super guarantee. While most employers do, unfortunately some have software that is automatic and may be reducing your super without them realising.