Salary sacrifice is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. It could be an effective way to boost your super and help you with saving for retirement. There may be tax advantages for you, depending on how much you earn.
To get started, do a budget to work out how much you can afford to invest from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you.
Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap. Contributions made by your employer also count towards your annual before-tax contributions cap.
The current before-tax contributions cap is $35,000 if you are aged 50 or over, otherwise a limit of $30,000 applies. Any contributions made above these limits will attract additional tax. However, from 1 July 2017 the contributions cap will reduce to $25,000 per financial year, regardless of age. Find out more about the upcoming changes to contribution rules effective 1 July 2017.
After-tax super contributions are made from money you have already paid income tax on. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution.
It could be advantageous to invest in your super using after-tax contributions rather than investing in assets held outside super. This is because money you invest in your super from your after-tax income isn’t subject to contributions tax (15%). In addition, any investment earnings within your super are taxed at a maximum of 15%, which may be below your personal tax rate.
The annual limit for after-tax contributions is currently $180,000 and in certain circumstances you may be able to contribute up to three times this amount per year. However, the annual limit will fall to $100,000 from 1 July 2017, so you may want to consider making a contribution before the end of this financial year to take advantage of the current higher amount of after-tax contribution you can make.
In the 2016/17 financial year, if you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.
To be eligible you need to earn less than $51,021 in the 2016/17 financial year and be aged below 71 at 30 June 2017.
The maximum co-contribution of $500 is available if you earn less than $36,021 in the 2016/17 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $51,021.1
If your spouse or partner’s assessable income is less than $13,800 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.
The maximum tax offset available is $540 if your spouse receives $10,800 or less in assessable income in the 2016/17 financial year, and provided you make an after-tax contribution of at least $3,000. The tax offset is progressively reduced until it reaches zero for spouses who earn $13,800 or more in assessable income in a year.
The Federal government will make the spouse super tax offset more accessible by raising the lower income threshold for the receiving spouse from $10,800 to $37,000 from 1 July 2017.2
As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you.
1 ATO website – Government super contributions – https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-my-super/government-super-contributions/
2 ATO website – Super related tax offsets – https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/
This information is current as at 15/08/2015.
This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Superannuation is a long-term investment. Generally, contributions to a superannuation fund are preserved. The government has placed restrictions on when you can access your preserved benefits. In general, benefits will not be able to be paid until a member is age 65, or has permanently retired and is above his/ her preservation age (i.e. 55 years up to 60 years depending on when the member was born).
The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. Currently the cap is $30,000 per person pa for the 2016/17 financial year. If you are aged 49 or over on 30 June 2016, the annual cap is $35,000.
In addition, the government has set a non-concessional contributions cap. The cap is $180,000 per person pa. Those under age 65 can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $540,000 per person over a three year period. However, in the Federal Budget announced on 3 May 2016, the government proposed to introduce a lifetime cap of $500,000 on non-concessional contributions, which would include non-concessional made since 1 July 2007. For more detail, speak with a financial adviser or visit the ATO website.
The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.