Sacrifice Pre-Tax Salary into salary

Image result for salary picturesContributing some of your pre-tax salary, wages or a bonus into super could help you to reduce your tax and invest more for your retirement.

How does the strategy work?

With this strategy, know as salary sacrifice, you need to arrange for your employer to contribute some of your pre-tax salary, wages or bonus directly into your super fund.

The amount you contribute will generally be taxed at the concessional rate of 15%, not your marginal rate which could be up to 49%.

Depending on your circumstances, this strategy could reduce the tax you pay on your salary, wages or bonus by up to 34%.

Also, by paying less tax, you can make a larger after-tax investment for your retirement.

What income can be salary sacrificed?

You can only sacrifice income that relates to future employment and entitlements that have not been accrued.

With salary and wages, the arrangement needs to be in place before you perform the work that entitles you to the salary or wages.

With a bonus, the arrangement needs to be made before the bonus entitlement is determined.

With a bonus, the arrangement needs to be made before the bonus entitlement is determined.

The arrangements, which should be documented and signed by you and your employer, should include details such as the amount to be sacrificed into super and the frequency of the contributions.

Other key considerations

*          Salary sacrifice contributions count towards the ‘concessional contribution’ cap and  tax penalties                apply if you exceed the cap.  In 2017/18, the CC cap is $25,000.00.

*          You can’t access super until you meet certain conditions.

*          Salary sacrificing may reduce other benefits such as leave loading, holiday pay and                                           Superannuation Guarantee contributions.

2017/18 changes

Changes recently legislated that may impact salary sacrificing from ` July 2017 include:

*          The annual cap on concessional (pre-tax) super contributions will reduce to  $25,000.00,                              regardless of age.

*          Most people will be able to claim a deduction for personal super contributions, regardless of                           employment status.

*          Individuals with come above $250,000.00 will pay an additional 15% tax on salary sacrifice and                   other concessional super contributions within the cap.

From 1 July 2018, if certain eligibility criteria are met, you may be able to carry forward unused concessional cap amounts.  This may enable you to make concessional contributions in excess of the annual cap in a future year.

You should speak with John or Vicki to understand how these changes will impact you.

Seek advice

We can assess all the issues that need to be considered and determine whether salary sacrifice suits your needs and circumstances.

John Wilson  0412 979 776                                  Vicki Day  08 9321 1522

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