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Bridges Financial Services

Salary sacrifice An easy and clever way to boost your super

20 Jun 2019

Is it the odd name that leads people to think that it is all a bit too hard? Or is it maybe a perception that you need to be a high income earner to take advantage of it? Whatever the reason, the truth is that salary sacrificing is actually quite a simple, accessible and effective way for many working Australians to save on tax while boosting their super nest egg.

All it takes is a little initiative to make an arrangement with your employer to alter your salary package so that some of your pre-tax income is diverted into your super rather than being taken as taxable income in the hand. This creates both a genuine savings on income tax and a welcome shot in the arm to your super.

It’s a particularly useful strategy for those who are entering the latter stages of their working lives when children have perhaps flown the coup and there is more income to be able to stack their super.

It’s simpler than you think

The basic premise of salary sacrificing is to channel some of your pre-tax income toward your super, rather than taking it as income. Money flowing to your super is taxed at a maximum rate of 15 per cent, compared to tax on your income which (depending on your level of income) can be as high as  per cent (47%). While there is a drop in take home pay, this is more than compensated by an overall reduction in the total tax you pay and a significant boost to your retirement savings. Here’s an example to illustrate how it can work: 

 

No salary sacrifice

With salary sacrifice

Total package

$80,000

$80,000

Super Guarantee contribution

$7,600

$7,600

Salary

$72,400

$72,400

Salary sacrifice

$0

$4,000

Taxable income

$72,400

$68,400

Income tax payable

$16,525

$15,145

Take home pay

$55,875

$53,225

Total super contribution

$7,600

$11,600

Super contribution tax

$1,140

$1,740

Net super contribution

$6,460

$9,860

Total net salary and net super contribution

$62,335

$63,115

Net improvement in overall position

 

$780

*Calculations for income tax and Super Guarantee Contribution are based on 2018/19 tax year and include Medicare levy. Calculation does not take into account the Low and middle income tax offset

In this example take home pay is reduced, but when it is combined with the amount going toward building your super the net overall improvement in your position is $780, after all taxes are taken into consideration. But, don’t forget, once your money goes into super, it generally needs to stay there until your reach your preservation age and retire from employment.

Take the initiative

While your employer is no better or worse off as a result of you salary sacrificing into your super, it is not something that they will usually actively promote or suggest to you and you should seek advice from a financial planner before making the decision to salary sacrifice.

Once you decide a salary sacrifice strategy is right for your financial situation, the steps to initiate it are quite straightforward. Firstly, you simply approach your payroll officer to make sure they are happy to enter the arrangement. You then simply decide how much you would like to salary sacrifice and complete a salary sacrifice agreement, which is submitted to your payroll officer to authorise them to divert your requested amount to the super fund you choose. The form will usually be available through the fund into which you want to have the contributions paid.

If your employer is unwilling or unable to arrange salary sacrifice contributions for you, the other option is to make personal super contributions from your after-tax income and claim a tax deduction in your tax return.

Part of your overall strategy

Salary sacrificing is one way of accelerating your super tax effectively, but it should always be done as part of an overall retirement savings strategy. It is best to seek advice from a qualified financial planner to make sure that salary sacrificing is appropriate for you and to determine how much you should be allocating toward your super through such an arrangement.


Take the next step

To discuss the complex financial choices you’re facing, make an appointment with a Bridges financial planner.

We have an established alliance with Bridges, to provide our customers with financial advice. Bridges has been helping Australians prepare for their retirement for 30 years.

A Bridges financial planner will develop a plan specifically for you; one that’s tailored to your needs and circumstances, to help you achieve your goals, both in the lead up to retirement and during retirement.

To make an appointment with a Bridges financial planner, call Credit Union SA on (08) 8202 7777. The initial consultation is complimentary and obligation free.

Bridges Financial Services Pty Ltd (Bridges) ABN 60 003 474 977, ASX participant, AFSL No 240837. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. In referring members to Bridges, Credit Union SA does not accept liability or responsibility for any acts, omissions or advice provided by Bridges or its authorised representatives. Bridges is part of the IOOF group.

Credit Union SA refers its members and other people to Bridges and in return receives a commission of up to 22.5% of the fees and commissions they receive on investments, and a trailing commission of up to 0.20% per annum on funds held under management.

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