Salary Sacrifice is about reducing the amount of tax you pay.
Salary Sacrificing into super allows you to benefit from paying lower tax and also allows you to have your money invested in a low tax environment.
The amount you can salary sacrifice into super is limited by your age based on your concessional cap.
From the 01/07/2014 the caps are as follows:
- Over age 60 $35,000 per year
- Between 50-60 $25,000 per year will change to $35,000on the 01/07/2014
- Less ten age 50 $25,000 per year
Concessional contributions are made up of employer (SGC) contributions and salary sacrifice. To ensure that you do not go over the cap you should first work out how much SGC you will receive in the financial year and deduct this from your concessional cap.
The balance is the amount you will be able to salary sacrifice.
For the 2013/2014 financial year, the SGC percentage is 9.25%, this means that your employer will pay 9.25% of your gross pay into superannuation.
If you are over age 50 and earn $70,000 per annum you will receive $6,475 ($70,000 X 9.25%) in SGC contributions. You are entitled to make salary sacrifice contributions of $18,525 per annum. The effect this would have is as follows:
Salary Sacrifice works best for those people who have surplus to their current needs. When you have paid off the house or the kids have left home.
If this surplus income is put to work in super as opposed to being wasted then you will be in a far better financial position when you do retire.
If you are younger it is harder to find the spare funds to put into superannuation, however, time is on your side.
If you are 30 years old and intend to retire at age 65, then putting away as little $4,500 per annum or $85 per week will boost your superannuation by $500,000 in retirement. You will also save $24,000 in tax.
Salary Sacrifice into super is necessary if you are looking to maintain your lifestyle in retirement.
You do have the ability to build your superannuation through non-concessional contributions, as you get closer to retirement, however, this requires that you have other assets to sell or move into the super fund.
Salary Sacrifice should be part of your long-term wealth creation strategy and tax strategy.
If you would like more information on Salary Sacrifice please call us on (07) 4771 4577.