Understanding Salary Sacrifice
You may have heard of salary sacrifice before, and have wondered what it is and how it could benefit you. Salary sacrifice (or salary packaging) is an arrangement through your employer where you can pay for certain things from your pre-tax salary. This includes products and services like cars, computers, childcare, health insurance and even super, with the benefit of reducing the amount of your taxable income.
When it comes to superannuation, the arrangement between you and your employer is for them to make additional contributions to your super account from your pre-tax salary, on top of any Superannuation Guarantee (SG) contributions you may be entitled to.
Not all employers offer salary sacrificing, so be sure to check with them first. If your employer does allow salary sacrifice, you must determine an amount of money you would like directed to your super account instead of your direct deposit bank account or pay.
Salary sacrificed amounts into super are taxed differently (at a concessional rate) versus regular salary. Individuals who make less than $250,000 a year only have to pay a 15 percent tax on their super contributions via salary sacrifice. Those who make upwards of $250,000 a year will have to pay a 30 percent tax on these contributions.
The point of salary sacrifice in this instance is another way to help boost the amount of super savings you’ll have available when you retire. There is a limit to how much money can be contributed via salary sacrifice and receive the concessional rate of taxation. The most recent figures on the concessional taxation limit are $25,000. After $25,000 has been contributed to the super account, a regular taxation rate of 45 percent and a Medicare levy will be applied.
Example of Salary Sacrifice benefit to Superannuation:
If you earn $85,000 a year, your Marginal tax rate is 34.5% and your total tax bill is $20,872 (including Medicare levy). If you salary sacrifice $5,000 to super, your salary is now $80,000, and your income tax has reduced to $19,147. The $5,000 is contributed straight to your super fund, where it is taxed at just 15%, which is $750. So overall you have gone from paying $20,872 in tax to $19,897, a saving of $975.
Getting advice about whether salary sacrifice is something you should consider makes sense, and the Super Advisers from Link Advice* can help you over the phone. Simply call the Nationwide Super team to get started.