Salary sacrifice
Salary sacrifice is a great way to cut your income tax bill while building up enough money for a comfortable retirement.

How it works is that you arrange with your employer for part of your pay to be diverted – or sacrificed – to your superannuation fund.

The money comes out of your pretax pay. So, instead of it being taxed in your pay packet at your highest personal tax rate – which could be as much as 46.5 per cent – you pay only a 15 per cent contributions tax as the money enters the superannuation fund.

You also end up paying less income tax overall because the money you've salary sacrificed is taken out before the tax on your pay is calculated.

However, there are limits to the amount you can salary sacrifice and still qualify for super's tax benefits. From July 1 2007, the maximum is $50,000 for people under 50.

There are also strict rules governing whether payments qualify as salary sacrificing, and you need to follow these if you want to benefit.

Importantly, salary sacrifice arrangements must be put in place "before you are entitled to payment". So it might pay to set something up before you start a new job or change roles (though the arrangements can be renegotiated at any time once in place).

Remember: the salary you've sacrificed can't be accessed until you reach retirement age (55 to 60). And when you're putting the arrangements in place with your employer, check that they don't plan to reduce the amount they'd otherwise pay into super for you (if they've been paying more than they're legally obliged to).

If you earn less than $58,000 a year, an after-tax contribution to super of up to $1000 can entitle you to a 'co-contribution' from the government.

If your income is below $28,000, you'll qualify for the maximum co-contribution of $1500. The contribution decreases on a sliding scale at higher incomes till cutting out at $58,000.

Spouse rebate
If your spouse isn't working or earns less than $13,800 a year, you can make a contribution of up to $3000 per annum on their behalf and in return receive an 18 per cent rebate on that amount (in other words, a maximum of $540) to be taken off your tax at the end of the financial year.

Transition to retirement allocated pensions
New rules introduced on July 1, 2005, were aimed at giving people aged over 55 more flexibility in making the move from full-time work to retirement. Instead of having to make a straight choice between work or a pension, now you can mix the two.

If you've reached preservation age (55 if you were born before 1960) you can access your super through an income stream product (but not a lump sum) without having to retire. Notably, the benefit can be contributed back into a super fund at any time.

The idea was that people could reduce their working hours and make up for the lost income by starting to draw a pension.

However, strategies have developed where people keep working full-time and salary sacrifice large amounts into super, living off a pension or annuity instead.

The result is that they reduce income tax (by salary sacrificing out of pretax income), they receive tax-free income via their private pension, and all the while they enjoy the low tax rates on superannuation contributions and superannuation earnings.

Remember, though, you're giving up the ability to withdraw a lump sum from an allocated pension, and there are now tax advantages in waiting until you are 60 to withdraw your super.

New strategies emerge all the time to make the best of super. They include:

  • Salary sacrifice
  • Co-contributions
  • Spouse rebate
  • Transition to retirement allocated pensions


Advisory:  Superannuation law is notoriously complex and subject to frequent change, so the information below can be only general in nature. A number of Federal budgets over the last few years have included some major changes to the rules surrounding super. Talk to a superannuation adviser to see how the rules apply in your individual circumstances.