As you would be aware, taxation can have a substantial impact on your income.
You can increase your super and receive significant tax advantages through a strategy that combines contributions from your pre-tax income (salary sacrifice) with your 9.50% super guarantee contributions.
For 2014/15, you can make concessional contributions up to $30,000 ($35,000 if aged 49 and over) into your super. Any money invested in this way in most cases is taxed at a maximum of 15% which is often lower than your marginal tax rate. The 2014/15 individual income tax rates are:
| Taxable income | Tax on this income |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |
| 0 – $18,200 | Nil |
| $180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
Note: The above rates do not include the Medicare levy of 2%
Example – salary sacrifice
$200,000
A $200,000 income with $10,000 salary sacrificed into super will save $3,400 in tax. It will reduce take home pay by $5,100 but increase superannuation $8,500.
| No Salary Sacrifice | $10,000 salary sacrifice | |
|---|---|---|
| Gross Salary | $200,000 | $200,000 |
| Less Salary Sacrifice | - | $10,000 |
| Taxable income | $200,000 | $190,000 |
| Less Income tax including Medicare Levy (using the 2014-15 tax rate) | $67,947 | $63,047 |
| Net Income (A) | $132,053 | $126,953 |
| SUPERANNUATION | ||
| Employer Super Guarantee | $19,000 | $29,000 |
| Salary Sacrifice Contribution | Nil | $10,000 |
| Total Contribution | $19,000 | $29,000 |
| Less Contributions Tax | $2,850 | $4,350 |
| Net Increase in Super (B) | $16,150 | $4,350 |
| Less Contributions Tax | $2,850 | $24,650 |
| Total Net Benefit (A+B) | $148,203 | $151,603 |
$100,000
A $100,000 income with $10,000 salary sacrificed into super will save $2,400 in tax. It will reduced take home pay by $6,100 but increase superannuation $8,500.
| No Salary Sacrifice | $10,000 salary sacrifice | |
|---|---|---|
| Gross Salary | $100,000 | $100,000 |
| Less Salary Sacrifice | - | $10,000 |
| Taxable income | $100,000 | $90,000 |
| Less Income tax including Medicare Levy (using the 2014-15 tax rate) | $26,947 | $23,047 |
| Net Income (A) | $73,053 | $66,953 |
| SUPERANNUATION | ||
| Employer Super Guarantee | $9,500 | $9,500 |
| Salary Sacrifice Contribution | Nil | $10,000 |
| Total Contribution | $9,500 | $19,500 |
| Less Contributions Tax | $1,425 | $2,925 |
| Net Increase in Super (B) | $8,075 | $16,575 |
| Total Net Benefit (A+B) | $81,128 | $83,528 |
As you can see from the above, salary sacrifice offers significant tax benefits especially for high income earners.
The clear disadvantage to salary sacrifice is that contributions are preserved in super until you meet a condition of release which is usually retirement. There are some other implications and things you need to consider:
- Employment benefits, such as compulsory superannuation guarantee contributions, annual leave and leave loadings
- Do not exceed your concessional cap. Any excess concessional contribution will be included in your assessable income and taxed at your marginal tax rate.
