Info that everyone should know
Salary sacrifice may be a concept that has never crossed your mind. Well pat yourself on the back for thinking about it now, because it is something that could save you a lot of money.
Simply put, salary sacrificing superannuation is an arrangement with your employer to give up some of your pre-tax salary to make voluntary contributions to your super. This can be in addition to the superannuation guarantee (SG) contributions that the employer is required to make.
Benefits
Salary sacrifice can be very worthwhile if you pay more than 15% tax on your salary.
This is because any before-tax money you pay into your super is taxed at 15% (or 30% if you earn more than $250,000 because of the Division 293 tax), whereas any money you take home will be taxed at your regular income tax rate, which could be as high as 47%. There is an annual contributions cap, this is touched on later in the post.
Adding small amounts will also make a large difference in the long run.
An extra $25 a week from age 35 to retirement at 65 could add around $147,268 to your final retirement amount, assuming 8% return, compounded annually.
An extra $50 a week could add around $294,536.
If you are aspiring to buy your first home, salary sacrificing super can act as an efficient savings method.
The First Home Super Saver scheme allows individuals from July 1st 2018 to apply to withdraw voluntary contributions made to superannuation for a deposit on their first home.
Up to $15,000 of voluntary contributions made in a financial year count towards the amount that can be released, with the maximum amount that can be released being $30,000.
The key benefit is that concessional contributions and earnings that are withdrawn will be taxed at marginal rates. Allowing for an easier and cheaper way to save for your first home.
Important Info
With these benefits comes certain rules and regulations, the largest being the concessional cap.
Salary sacrifice contribution to super is a concessional contribution, and needs to be counted towards the concessional cap.
On July 1 2017 the annual concessional contributions cap was dropped from $30,000 to $25,000 for all ages.
On top of this any award payments cannot be sacrificed, as well as any bonus or commision that has been earned.
You also can’t claim deductions or tax offsets for before-tax contributions.
This is because you’re already paying less tax (15%) on the amounts you pay into your super.
As it stands few people under the age of 40 have opted into a salary sacrifice agreement with their employer.
SuperChoice, who administer super contributions between employers and employees recently analysed its data on super payments and broke the figures down for salary sacrifice contributions by age cohort for the five years to June 30, 2016.
Only 1% of Australians in their 20s made salary sacrifice contributions, and that only moves up slightly to 3% in the 30s age bracket.
As expected the numbers increased the closer to retirement you get, with almost 17% of 60 year olds salary sacrificing, at $12,000 a year on average.
Salary sacrifice certainly has it’s benefits, if this sounds like something that would interest you, reach out to your employer, or for any more information check out the ATO website (https://ato.gov.au/super).
