Salary sacrifice into super or tax deductible contributions?

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Salary sacrifice into super or tax deductible contributions

It’s a known fact, Australians, on average, are living longer. Retirees commonly spend over twenty years in retirement and the need to accumulate savings while they are still working to fund this retirement period has never been greater.

Using a salary sacrificing strategy where your employer contributes some of your salary into superannuation before tax is deducted has proven to be an effective way for many to accumulate wealth for retirement. For the self-employed, this strategy has been achieved by claiming a tax deduction on super contributions.

What’s changed?

There have been two recent changes to super rules which may impact those salary sacrificing or making tax deductible contributions – one positive and one negative.

Contribution limits reduce

From 1 July 2017, instead of a $30,000 cap on contributions for those under 50 or the higher $35,000 cap for those 50 plus, the concessional contributions cap will be $25,000 for everyone.

Concessional superannuation contributions are contributions made by your employer on your behalf or personal contributions where you claim a tax deduction. The following table provides examples of the types of contributions that will count towards your $25,000 cap.


If you exceed your concessional contributions cap of $25,000, the excess amount will be taxed at your marginal tax rate, instead of the concessional 15% that applies to most concessional contributions. Plus an additional interest charge will have to be paid to the Australian Taxation Office (ATO). So now is the perfect time to review your current contribution amounts to ensure that you don’t exceed the new limit.

Tax deduction available to more people

The second change that commenced from 1 July 2017 is that anyone eligible to make contributions to super now has the opportunity to claim a tax deduction for that contribution, irrespective of your employment situation. Previously, only the self-employed or those earning little or no income as an employee could make tax deductible contributions.

This is an important change for many workers as they will now have greater flexibility, especially if their employer places restrictions on their ability to salary sacrifice.

Consider these scenarios.


Case study

Oscar is 45 years of age and earns $110,000 a year designing software. After meeting his ongoing commitments, he has the capacity to invest an additional $14,000 per year for his retirement in 20 years time.

If Oscar was to make tax deductible contributions to superannuation of $14,000 in addition to the SG contributions his employer already makes, he could achieve a tax saving of $3,360 and that’s just in one year as shown in the following table.


Over a 20 year period, the financial benefit of Oscar making tax deductible contributions to super compared to investing outside the super environment is significant. At age 65, it is estimated that Oscar will have an extra $115,000 to invest for his retirement.

If you would like to know more about these changes and how they will impact you, please talk to us.

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