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.
As salary sacrificing is such an attractive strategy the government does impose some restrictions and limitations. You are limited to making a maximum of $30,000 in these and other contributions each year. These contributions also attract a 15% contributions tax. However 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 you won’t be able to access the money until you retire, on or after the age of 55. 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 and 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.
| Without Salary Sacrifice | With Salary Sacrifice | |
| Additional remuneration | $10,000 | $10,000 |
| Less: salary sacrifice | - | $10,000 |
| Additional assessable income | $10,000 | - |
| Less: Income tax (32.5%) | $3,250 | - |
| Less: Medicare levy | $200 | - |
| Additional income after tax | $6,550 | - |
| Personal contribution into superannuation | $6,550 | - |
| Less: Superannuation contributions tax (15%) | - | $1,500 |
| Net contribution into superannuation | $6,550 | $8,500 |
| Earnings on additional superannuation (7%) | $230 | $298 |
| Less: tax on superannuation earnings (15%) | $35 | $45 |
| Superannuation earnings after tax | $195 | $253 |
| Benefits: | ||
| Additional income (inc. superannuation earnings) | $10,230 | $10,298 |
| Total tax | $3,485 | $1,545 |
| Total boost to superannuation | $6,745 | $8,753 |
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, consult a financial adviser on (07) 3040 4840 who can assist you in setting up an effective arrangement to maximise your benefits in both the short and long term.
The advice on this site may not be suitable to you because it contains general information that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Please also refer to our general advice warning under contact us tab on our website. The article is based on information available at the time of writing only and therefore care should be taken as to the accuracy of the content.
Image courtesy of [Mister GC] at FreeDigitalPhotos.net
