Well-informed employees can turn, what would have been an income tax liability, into extra super contributions by making use of a salary sacrifice arrangement.
By agreement with your employer, you can have money paid into your super fund from your salary. These contributions to your superannuation fund are paid from your salary before income tax is taken out, and can therefore reduce your income tax liability and also boost your super savings.
Any amounts contributed to a complying superannuation fund in this way are not considered by the ATO as a fringe benefit. Therefore, your employer should generally be happy with a salary sacrifice arrangement, as no fringe benefits tax will be payable on these contributions.
From a tax point of view, a salary sacrifice arrangement is only valid if the agreement is in place (that is, your revised work contract is signed by all parties) before the employer starts making these contributions.
Amounts contributed to your super fund will be taxed in the hands of your fund at a rate of 15%. Therefore, whatever amount you can put away will not be taxed at your marginal income tax rate, which in most cases will be more than the rate of 15% levied on your super fund. Your super fund also only pays 15% tax on earnings, such as interest from the money invested as a result of receiving your salary sacrifice contributions, which again is probably less than what you’d pay if you earned interest on the money yourself.
When making extra super contributions via a salary sacrifice arrangement, you should ensure that your total pre-tax super contributions (which would include your 9,5% compulsory super guarantee) does not exceed the concessional contributions cap. The general concessional contributions cap for 2015-16 is $30,000, or $35,000 if you were 49 years or older on 30 June 2015.
Turning income tax into superannuation savings – with salary sacrifice there is less tax and more super – a very handy way to boost your retirement savings. For more information on salary sacrifice arrangements, contact an accountant at Optima Partners today.
Snr SMSF Accountant – Optima Partners