What is salary sacrifice and how do I do it?
You may have heard of salary sacrifice before, and have wondered what it is and how it could benefit you. Salary sacrifice is a way to contribute to your super account for future retirement and reduce the amount of taxes you will have to pay.
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. You must get the detailed figures of your salary sacrifice in writing for the Australian Taxation Office (ATO).
Salary sacrifice is 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 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 is to ensure that you will have a decent amount of money for when you decided to retire. The salary sacrifice program offers individuals great incentive to contribute to the super accounts and plan for their inevitable retirements.
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.
You need to make sure that your salary sacrifice agreement with your employer is in writing, and clearly states your salary and the amount of money you will be contributing every pay period. At any point in the year you can choose to withdraw from your salary sacrifice agreement if you find you need to access more of your money.
Feel free to contact us if you have any questions about salary sacrifice and superannuation.