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 your 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 often 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 and retire before you can access your super.
Salary sacrificing case study
Lucy is promoted to a senior management role and her annual salary increases from $70,000 to $80,000 per annum. She is considering 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 based on the initial personal tax savings.
|Without Salary Sacrifice||With Salary Sacrifice|
|Less: salary sacrifice||–||$10,000|
|Additional assessable income||$10,000||–|
|Less: Income tax (32.5%)||$3,250||–|
|Less: Medicare levy||$200||–|
There is an obvious benefit for Lucy 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, contact 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.
The case study is illustrative only and does not account for investment returns you will receive or fees and costs you will incur.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information. It is recommended you contact your tax and super professional for advice.
Blueprint Planning Pty Limited (ABN 78 097 264 554) trading as Blueprint Wealth. Authorised Representative and Credit Representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.