Following on from the earlier article regarding Super tips, this article provides a little more detail around the salary sacrificing strategy.
Due to the way tax is applied to superannuation, employees can not only save themselves tax by salary sacrificing but significantly boost their retirement savings.
An employee, by written agreement with their employer, can have money paid into their superannuation fund from their salary before tax is taken out.
These contributions reduce an employee’s personal tax bill as well as boost their superannuation as their superannuation is taxed at 15% rather than their employee’s marginal tax rate.
For example, Steven has an annual salary $90,000, excluding any superannuation guarantee provided by his employer.
If an agreement is reached between himself and his employer to make $10,000 in before tax contributions to superannuation, he will boost his retirement savings and save almost $2,500 in tax.
Of course without salary sacrificing Steven would have a higher take home pay of approximately $67,000 with tax of about $23,000.
However, with salary sacrificing there is less tax – approximately $61,000 in take home pay and tax of about $19,000 and additional superannuation to the tune of $8,500.
It is important to ensure any salary sacrificing agreement remains within the relevant caps – $30,000 if under age 50 and $35,000 if 50 years and over – which includes the 9.5% superannuation guarantee.
There is also further savings to be made by Steven as the investment earnings made by his superannuation fund is taxed at 15% rather than his marginal tax rate of 39%.
If you would like to discuss how salary sacrificing may assist in reducing your tax please contact Ellingsen Partners