Plan for the future – contribute to your super
Making contributions to your super is a great way to plan for your retirement. You can do this by salary sacrificing your super. Many people have heard the term ‘salary sacrifice’ but what does it actually mean?
Salary Sacrificing is when you ask your employer to redirect a portion of your pay as a contribution to your super. By ‘sacrificing’ some of your before-tax salary and putting it into your super fund, you get taxed at the rate of 15%. If you earn over $37,000 in a financial year, the 15% rate is lower than the marginal tax rate meaning you not only boost your super; you save tax as well!
Consider the following scenario:
Jade earns $90,000 before tax, excluding her employer’s super contribution.
If Jade were to redirect $10,000 of her pay into salary sacrifice super contributions, she will save $2,350 in tax, with the money going into her super fund.
|Jade’s boost||Does nothing||Salary Sacrifices $10,000|
|Extra money into super||$0||$8,500|
|Net benefit||$67,403||$69,753 ($2,350 better off)|
Super concessional caps
Most people can contribute up to $25,000 a year; including the employer’s 9.25% super guarantee contribution. This is known as the concessional contributions cap. For those people who are closer to retirement, there are higher concessional caps:
People aged 60 and over can contribute $35,000 including the employer’s 9.25% super guarantee contribution.
From 1 July 2014, people aged 50 and over can contribute $35,000 including the employer’s 9.50% super guarantee contribution.
Be sure to enter into a formal agreement with your employer if you want to sacrifice part of your salary to super. It’s best to include the details in your terms of employment. This will ensure your employer calculates their 9.25% super guarantee contribution on your original salary.
If you are considering salary sacrificing your super or would like advice on how to minimise your tax obligations, our dedicated tax accountants can help you in better managing your income. Call us today on 02 9223 9166 or visit www.quinns.com.au and submit an online enquiry.