Income sacrificing funds to superannuation continues to be considered one of the most effective strategies to assist in lessening your tax and preserve for retirement. It might not be acceptable for everyone, but for Lots of people it may also help them maximize their retirement nest egg.
What is Salary Sacrifice?
Income sacrifice is a technique that allows you to divert some pre-tax income to a superannuation fund While using the goal of conserving tax. You get a decrease level of submit-tax income Due to this fact.
What’s the benefit?
The money which is contributed to superannuation is taxed at 15%. So, For each $1,000 which is salary sacrificed to Tremendous, $150 is deducted, leaving $850 to get invested.
Should you make in excess of $35,000 a year, you’re likely to be on the marginal tax amount of thirty% or higher (additionally 1.5% Medicare levy). convert yearly salary to hourly Let’s say you generate $sixty,000 pa and so are about the thirty% tax price. $one,000 of cash flow has $three hundred tax deducted and $15 Medicare levy deducted (assuming the same old Medicare levy applies). This leaves you with $685 to invest soon after tax.
So, 1 advantage of income sacrificing is that you’ve more money to speculate than if you elected to get exactly the same portion of money as income and paid tax at your (greater) marginal fee of tax.
Salary Sacrifice – Items to think about
Certainly, there are actually positives and negatives to income sacrificing. The plain edge is that the 15% contribution tax is decreased than your marginal amount of tax when you receive over $35,000 pa (dependant on 2009/10 tax rates).
A downside of salary sacrificing is that your money are preserved as part of your superannuation fund until finally you satisfy a condition of release – typically reaching a certain age or retiring. For somebody near to retirement, this will likely not have an affect on their determination to wage sacrifice. A person in their 30’s, nevertheless, may well choose to lead a lot less to superannuation via a salary sacrifice arrangement, and instead accumulate funds beyond Tremendous the place the investments keep on being available. This is a trade-off concerning conserving tax and retaining entry to funds.
Observe Your Contribution Caps
One more significant thing to consider when salary sacrificing is usually to make sure you don’t exceed your contribution caps. There’s a highest amount you can lead to Tremendous each and every year (depending on your age). Contributions in excess of these boundaries can result in excess tax currently being payable, consequently diminishing the performance of income sacrificing.
Contributions your employer tends to make may also be included in these caps, so you might want to just take this into consideration when determining how much to wage sacrifice.
Salary Sacrifice – Summary
Salary sacrifice can be a tax-efficient way of contributing revenue to superannuation to fund your long run retirement. But it can be crucial to set it up correctly.