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.
By Robert Ellis from Success Tax Professionals Forrestfield