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If you are earning more than you need to live comfortably, salary sacrificing may be an attractive option to reduce your tax, boost your superannuation and prepare for a more comfortable retirement later on.
Salary sacrificing simply involves having part of your salary paid into a superannuation fund by your employer rather than receiving it as income. These contributions are not included as part of your assessable income, reducing your income tax burden.
But you can’t have it all your own way. Salary sacrificing is such an attractive strategy but beware of exceeding the concessional contributions cap which will negate any tax benefits. Staying under your applicable limit will mean salary sacrificed contributions attract only a 15% contributions tax. This is significantly less than you would pay in income tax if you received it as income. You will also need to have a formal agreement in place with your employer. And importantly, you won’t be able to access the money until you reach your preservation age. Depending on your year of birth you may have to wait until you turn 60 before you can access your super.
Case study
Karen is promoted to a senior management role and her annual salary increases from $70,000 to $80,000 per annum. She is offered the option of having the additional remuneration paid direct into her superannuation (salary sacrifice) or receiving it as income, which she could
then contribute into superannuation. The following table compares the different outcomes of the two strategies including the first year’s earnings on the contribution.
There is an obvious win-win for Karen by sacrificing the additional remuneration to super – she pays less tax and increases her superannuation balance by a larger amount.
If you want to take advantage of saving tax through salary sacrificing to super, come and talk to us. We can assist you in determining if it’s right for you, and if so, set up an effective arrangement to maximise your benefits in both the short and long term.
Warm Regards
Chris Connolly Dip.FS AFA
Principal Financial Adviser
ABN: 68 581 763 266
Phone: (03) 9591 8000
Fax: (03) 9530 8375
PO Box 5074, Bentleigh East Vic 3165
Email: chris@connollywealth.com.au
Website: https://connollywealth.com.au
Sources:
Australian Taxation Office www.ato.gov.au
Salary sacrificing super
In this article we have not taken into account any
particular person’s objectives, financial situation or
needs. You should, before acting on this information,
consider the appropriateness of this information
having regard to your personal objectives, financial
situation or needs. We recommend you obtain financial
advice specific to your situation before making any
financial investment or insurance decision.
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