Salary sacrificing some of your pay to superannuation can be a very tax-effective way to increase your reitrement savings and also reduce your income tax liability. The amount you sacrifice into your super is essentially deducted from your assessable income, which may reduce your income tax liability.
Instead of paying tax at your marginal rate on the money, when you salary sacrifice your pay to super, it becomes a taxable contribution received by the fund. The contribution (plus any future income earned from the investment) is generally taxed at a minimum rate of 15%.
Because of the generous tax concessions, the government restricts concessional contributions (which include superannuation guarantee, salary sacrifice and personal concessional contributions).
An employer can contribute to super on your behalf and claim a tax deduction for an unlimited amount, but if your concessional contributions exceed $50,000 in a year, you'll pay tax at 31.5% (in addition to the 15% tax paid by the super fund) on the excess. You'll receive the tax bill but you'll be allowed to withdraw money from you super fund to pay it.
If you're 50 or older at any time to 30 June 2012, your concessional contribution limit is $100,000 (instead of $50,000) beore excess tax is charged. The $100,000 limit applies for each year you're over 50 until 30 June 2012,w hen it reverts back to $50,000.
Things you should consider
Don't salary sacrifice funds you think you may need before you retire. If you're younger, it may be more beneficial to pay off non-deductible debt (such as your home loan) instead.
If you're older, the reverse could be true. Generally, salary sacrificed funds will have been taxed at 15% and once you retire you can access the funds tax-free and pay off oustanding debts. Make sure you have a written agreement with your employer before making contributions.
If you would like more information about salary sacrifice or whether this is the best option for you to have a financially secure future, speak to one of the financial advisors at Intellichoice first. They will be able to recommend an option that suits your needs based on your current financial circumstances. Speak to one of the financial planners at Intellichoice by calling 1300 55 10 45 email info@intellichoice.com.au or visit www.intellichoice.com.au for more details on the various services and products on offer.
