Salary Sacrifice

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 incomeTax 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.

 

No Comments Yet.

Leave a comment