Salary sacrifice offers a tax effective way of boosting your retirement savings

WHY INVEST MORE INTO SUPER?

No matter how old you are or what stage you’re at in your working life, you need to ensure you have a solid plan in place to achieve your retirement goals. Your superannuation fund will likely be the primary means for achieving this goal. Super is a very attractive investment allowing you to save for your retirement in making regular contributions which can be tax effective

INCREASE YOUR SUPER BY SALARY SACRIFICING

One of the most tax-effective ways to top-up your super is to salary sacrifice additional contributions. Many employers now offer salary sacrificing, allowing employees to redirect a portion of pre-tax salary into super.

By salary sacrificing to super, your money only attracts the super contribution tax rate of 15% within the concessional cap, this compares favourably to receiving the additional income which will, generally, be taxed at your marginal tax rate which may be as high as 46.5% including the Medicare levy.

You can also make additional contributions to your superannuation out of your after-tax salary, but personal income tax would have been paid on this money.

WHAT ARE THE BENEFITS?

▪ Reduce your tax liabilities. Salary sacrificed contributions to a complying super fund are not subject to income tax or fringe benefits tax (FBT). Money contributed to superannuation within the concessional cap attracts a tax rate of just 15 %.1

▪ Your assessable income, and therefore your personal income tax liability, is reduced.

▪ Improve your ability to accumulate wealth. With a lower rate of tax applied to super contributions, you will have more money in super to accumulate wealth than if you were to invest outside of super.

▪ Look forward to withdrawing your super tax free. People aged 60 and over are able to withdraw their money from superannuation tax free, making it an attractive option to fund retirement.

▪ Additional contributions can assist to help towards insurance premiums through superannuation in a way to effectively manage your cash flow.

1. Individuals will have to pay an extra 15% tax on some of, or all of their ‘taxable contributions’ if their income, plus ‘taxable’ contributions are greater than the $300,000 threshold.

CASE STUDY – TAKING ADVANTAGE OF SALARY SACRIFICING

Adrian, 39, is currently employed on a base salary of $80,000 plus $7400 employer super guarantee contributions. Adrian is considering salary sacrificing into superannuation providing he can continue to meet his annual living expenses of $50,000. The table below shows the difference Adrian can make by salary sacrificing $16,000 per annum.

No Salary Sacrifice Salary Sacrifice

Gross Salary $80,000 $80,000

Less Salary Sacrifice Nil $16,000

Taxable Income $80,000 $64,000

Net Tax (includes Medicare levy) $18,747 $13,307

Net Income (A) $61,253 $50,693

Superannuation

Employer Super Guarantee $7,400 $7,400

Salary Sacrifice Contribution Nil $16,000

Total Contribution $7,400 $23,400

Less Contributions tax ($1,110) ($3,510)

Net Increase in Super (B) $6,290 $19,890

Total Net Benefit to Adrian (A+B) $67,543 $70,583

Overall Adrian is $3,040 better off by salary sacrificing into Super. While Adrian has reduced his after tax income, he has substantially increased his super balance. Overall, his net wealth (salary plus super) has increased as a result of his salary sacrifice strategy

STRATEGY CONSIDERATIONS

Confirm with your employer that they allow salary sacrificing and how this will impact your super-guarantee contributions and leave entitlements

▪ Ensure you calculate how much your contributions will total for the financial year, taking into consideration contribution caps. If you are aged less than 59 as at 30 June 2013 the maximum you can contribute is $25,000 and if aged 59 on 30 June 2013 and above can contribute the maximum of $35,000.

▪ Super money is preserved until your retirement. While superannuation is an effective and tax-efficient way of investing for your retirement, you can’t access your super money until you meet a condition of release.

Resourced From: https://www.perpetual.com.au/Resources-and-documents/Educational-Brochures/?