Salary Sacrifice, Super and Tax

Salary sacrifice is forgoing salary to receive another benefit (which could be a fully maintained motor vehicle, holiday, etc.).  In this case additional employer superannuation contributions.  If you are in a high tax bracket this option could be an attractive option to boost your retirement savings.  Sacrificing $10,000 gross pay with a tax plus Medicare rate of 39% would only cost $6,100 from your net pay.  Your super fund would receive $10,000 and pay 15% contribution tax leaving $8,500 in your fund.  You save $2,400 in tax.

From 1 July 2017 (May 2016 Budget) anyone can put money in super and get a tax deduction.  Previously employees had to salary sacrifice to get a tax deduction but now they have the option of contributing themselves. 

You can also make non concessional contributions, also called after-tax, or un-deducted contributions (this involves contributing money without getting a tax deduction). This money retains its non-taxable character as non-concessional contributions in the fund so the fund does not have to pay the 15% tax on these contributions.  In the May 2016 Budget annual non concessional contribution caps have been replaced with a $500,000 lifetime cap, without annual restrictions. When you later access your superannuation the un-deducted contributions will be tax free, as it is essentially your money being returned.

Under the budget changes, from 1 July 2017 you will not need to be gainfully employed to contribute. The new $500,000 lifetime non-concessional contributions lifetime cap will be backdated to all non-concessional contributions made on or after 1 July 2007, and will commence at 7.30 pm (AEST) on 3 May 2016 (Budget Night).  Contributions made before commencement (budget night) cannot result in an excess. If you have already contributed more than $500,000 it can stay.  However, any excess contributions made after budget night will need to be removed or subject to penalty tax.

Robert Ellis from Success Tax Professionals ForrestfieldBy Robert Ellis from Success Tax Professionals Forrestfield