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When you salary sacrifice to super, you divert part of your pre-tax salary into your super account. So instead of receiving it as salary after tax is deducted, it is contributed directly to your super.
The benefits of salary sacrifice
- Save on income tax because the salary you direct
into super is taxed at 15% (up to your
concessional contribution limits), not your
marginal tax rate, regardless of how much you
earn.
- Boost your super by contributing more now and
have more for retirement.
How does it work?
You first need to find out if your employer offers a salary sacrifice service. If they do, you will need to set up an agreement outlining how much of your pre-tax salary you wish to direct to your super fund.
Salary sacrifice can work effectively if you:
- are under 75 years of age and eligible to contribute
- want to give your retirement savings a boost
- have a marginal tax rate above 15%
- can salary sacrifice income without it having a huge impact on your lifestyle
- have an employer willing to salary sacrifice your income,
 Care should be taken to ensure your employee entitlements are not adversely impacted as a result of salary sacrificing, or that you don't breach your concessional contributions cap. Speak to your GTM Financial Adviser for information on the concessional contributions cap.
Whether salary sacrifice is right for you will depend on your personal circumstances and income level, so you should speak to your financial adviser before setting up a salary sacrifice arrangement.
Meet Carol
Carol is 40 years of age, currently earns $85,000 p.a., and wants to start investing to ensure a comfortable retirement. Because she can't decide whether to put more into her super or invest outside of super, Carol decides to see her financial adviser.
Carol's adviser recommends a balanced portfolio and shows her the potential outcome over 20 years if she invests $5,000 p.a. of her pre-tax income outside of super versus salary sacrificing the amount into super
Assumptions:
- Marginal tax rate outside super is 41.5% (including Medicare Levy).
- CGT and income tax is taken into account at all times.
- CGT discount for 12 month ownership applied (50% in personal name, 33% in super fund).
- All earnings are reinvested (less tax for income).
- Tax rate inside super (including on contributions) is 15%.
- Returns from the portfolio are 8% (5% capital gain, 3% income) both inside and outside super.
- 20% of the income from the portfolio is franked. This information is provided for illustrative purposes only.
How did the adviser come to this conclusion?
Let’s look at the numbers:
| |
Investing outside of
super |
Salary sacrificing into
super |
| Amount Carol wishes to invest p.a. |
$5,000 |
$5,000 |
| Tax p.a. |
$2,075
(Carol’s marginal tax rate is 41.5%) |
$750(salary
sacrificing contributions aretaxed concessionally at 15%) |
| Amount left to invest after tax |
$2,925 |
$4,250 |
| Total amount after 20 years |
$115,448 |
$189,733 |
| Carol
decides to salary sacrifice her $5,000 p.a. and looks forward to being
$74,285 better off by the time she’s 60 years of age. |
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