Prior to 1 July 2017 Salary Sacrifice contributions was one that involved lengthy discussions with your Financial Advisor and Employer to ensure the money saving scheme was actually saving you money. Now, in this new super world, new legislation has made it even easier to boost your superannuation balance and save on tax.
If you are an employee you can now make contributions to superannuation with your after-tax income and claim a tax deduction on this, up to a maximum of $25,000 per year. This new rule negates the need to set up salary sacrifice payments.
So what do you need to consider?
The compulsory superannuation your employer pays
This is your Superannuation Guarantee (SGC) that comes out of your wages. The $25,000 cap per year includes this amount. For example – your employer has made $10,000 in SGC payments for the financial year. You can contribute an additional $15,000 and claim a tax deduction.
Are you over 65 years old (but under 75)?
You are still eligible to make concessional contributions and claim a tax deduction – given that you meet the ‘Work Test’. To satisfy the work test you must have working at least 40 hours within 30 consecutive days in the financial year that the contribution is being made.
How much will I be saving on tax?
The answer to this depends on how much you earn and what rate you are taxed at. Concessional contributions will be taxed at 15% (unless you earn greater than $250,000, then you pay tax at 30%) – generally a much lower rate than your marginal tax rate.
| Taxable income | Tax on this income |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $87,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $87,001 – $180,000 | $19,822 plus 37c for each $1 over $87,000 |
| $180,001 and over | $54,232 plus 45c for each $1 over $180,000 |
Source: https://www.ato.gov.au/Rates/Individual-income-tax-rates/
Do you have the excess savings to be making this contribution?
Whilst contributions into superannuation are taxed concessionally (taxed at a special rate) and may be saving you money, you are locking this money away. Superannuation monies cannot be accessed until a condition of release is met, such as retirement generally over 60 years of age.
Do you earn more than $250,000?
There are three types of tax you pay on your superannuation.
- Contributions tax – tax you pay upon the money entering the fund
- Income tax – tax you pay on earnings within your superannuation fund (eg. investment returns), this is taxed at a flat 15%
- Capital Gains tax – where an investment or asset is sold at a profit. Given that you have held the asset for atleast 12 months this is taxed at a flat 10%
So why do you need to consider making personal deductible contributions when you earn over $250,000? Rather than paying a 15% contribution tax, this is increased to 30%. It is worth sitting down with your financial advisor to discuss if this is the most tax effective strategy for you.
At Wealth and Retirement Solutions we specialise in Superannuation strategies – ensuring your money is working for you. If you want to build real wealth, we want to partner up with you.
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