Salary sacrificing is a straightforward way to save on taxes today while boosting your superannuation for the future. By opting to have a portion of your salary paid directly into your super fund, you can reduce your taxable income and take advantage of the lower tax rate applied to super contributions.
How Salary Sacrificing Works
Under the salary sacrifice arrangement:
- Your employer pays part of your wages directly into your superannuation fund.
- These contributions are taxed at 15%, significantly lower than most personal marginal tax rates, which can go as high as 47% (including Medicare levy).
For instance, if your marginal tax rate is 30%, you save 15% in tax on the portion of income you sacrifice. The higher your tax rate, the greater your potential savings.
Example: Saving $3,300 in Tax
Consider an individual earning $90,000 annually:
- By salary sacrificing $200 per week (or $10,400 a year) into their super fund, they lower their taxable income to $79,600.
- Their tax drops from $19,558 to $16,260, resulting in a tax saving of $3,328 annually.
- At the same time, the additional $10,400 contribution to their super fund grows over time, benefiting from compound investment returns.
Benefits Beyond Tax Savings
- Compound Growth: Extra super contributions are invested and earn returns over the years, significantly increasing your retirement fund.
- Tax Efficiency: Contributions taxed at 15% provide substantial savings compared to your marginal tax rate.
- Financial Security: Bolstering your super ensures you have a robust fund for retirement.
Important Considerations
While salary sacrificing offers clear benefits, there are some key points to consider:
- Concessional Contributions Cap:
The annual cap for concessional (before-tax) contributions, including employer contributions, is $30,000.- Example: If your employer’s mandatory super contribution is $15,000, you can contribute up to $15,000 more without breaching the cap.
- Contributions above the cap may attract excess contributions tax, negating the benefits.
- Access Restrictions:
Funds in your super account are generally locked until retirement. Ensure your cash flow remains sufficient to cover your day-to-day expenses before committing to salary sacrifice.
Why You Should Check Your Super
Research shows that while most Australians recognize the importance of super for retirement, less than half check their accounts more than once a year. Regularly reviewing your super helps you:
- Monitor contributions to avoid breaching caps.
- Assess fund performance and fees.
- Maximize benefits for retirement planning.
Take Action Today
Salary sacrificing is a powerful strategy to reduce your tax bill and build a stronger financial future. If you’re ready to take advantage of this tax-saving opportunity, let Boa & Co. Chartered Accountants guide you through the process. Whether you need personalized advice, assistance with salary sacrifice arrangements, or a complete review of your financial strategy, our team is here to help.
Contact us today at 1300 952 286, send an email to [email protected], or visit our website at www.boanco.com.au to get started. Take the first step toward maximizing your financial potential!