Salary Sacrificing: What is it and How Does it Work?

Setting aside funds for your savings, investments, and retirement ensures your hard-earned money can grow so you can live a comfortable and financially secured life in the years ahead. While superannuation is one of the most common strategies to build your wealth, there are additional strategies you can do to achieve financial success.

One of the most overlooked tactics involves salary sacrificing, which essentially means increasing your regular contributions above the compulsory rate. While the term “sacrifice” sounds daunting since it connotes losing something valuable, a salary sacrifice can take your gains to greater heights in this financial situation. But what exactly is a salary sacrifice arrangement, anyway?

What Is a Salary Sacrifice?

Contrary to popular belief, a salary sacrifice doesn’t take away from your income—instead, it’s an arrangement that involves taking a portion from your salary in return for better tax benefits. This agreement is usually between you and your employer, wherein they will deduct an agreed amount from your pre-tax income and allocate it towards a myriad of benefits.

Keep in mind that you can apply a salary sacrifice to your bonuses or commissions, so the benefits you can invest in using this arrangement includes the following items:

Fringe Benefits – these are fringe benefits tax (FBT) issuance dedicated to your cars, loan repayments, school fees, and childcare expenses.
Exempt Benefits – funds taken from your income will be allocated to work-related deductibles such as your portable electronic devices, computer software, protective clothing, briefcases, and other tools of the trade.
Superannuation – a salary sacrifice can be made into superannuation in addition to your super guarantee.

Salary sacrificing into your super account can be an excellent way to increase your retirement savings. Plus if you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this tax rate is less than your marginal tax rate.

Beyond reaping the benefits mentioned above, one of the most significant advantages of salary sacrificing is that you’ll buy them using pre-tax dollars, which ultimately gives you better buying power.

The Bottom Line: How Salary Sacrificing is a Powerful Strategy to Supercharge Your Superannuation Funds

There are different ways to make your money work for you in the future. However, salary sacrifice can be worth the shot for those who want to obtain financial wellness, all while leaving a sufficient buffer to cover other expenses in your life.

Handling finances can be tricky for many people – be it for setting aside your income for retirement, savings, monthly expenses, or other investments to build your wealth. But we can take the guesswork out of your monetary struggles with our Newcastle-based financial services as we take a tailored approach to your unique needs and goals.

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If you’re at a loss with retirement planning, superannuation, and more, book a meeting with our financial advisors at Newcastle Financial Planning Group! Let’s talk about what we can do to help you achieve financial success and security.