If you’re disheartened by your current super balance, it’s not too late to do something about it. If you don’t already have a salary sacrifice agreement in place, now is a good time to talk to your employer or financial adviser to see if a salary sacrifice arrangement is right for you this new financial year. Before you decide to embark on a salary sacrifice arrangement using superannuation contributions, chat to your financial adviser about the possible implications, and ensure you do not lose out financially on your employment package.
Salary sacrificing superannuation, by making before-tax super contributions, is a popular strategy for individuals on middle-to-high incomes who can benefit from tax advantages. Under a superannuation salary sacrifice arrangement, your employer can make additional super contributions when you arrange for some of your pre-tax salary to be paid into your super fund. Your salary, for tax purposes, is then reduced while the additional contributions are treated as employer contributions. The deal is that you increase your superannuation balance while reducing the amount of income tax payable on your salary or wages. Those who earn up to $300,000, pay 15% contributions tax, while those earning more than $300,000 pay 30% tax on contributions, where income tax payable can be up to 49% including Medicare levy.
Salary Sacrifice Contributions are Concessional Contributions
Any super contributions made under a salary sacrifice arrangement are treated as concessional contributions and need to be counted towards your concessional contributions cap. The concessional contributions cap applicable to you depends on your age. For the 2016/2017 year, the concessional cap is $30,000 for anyone aged 48 years or younger on 30 June 2016, and $35,000 for anyone aged 49 years or older on 30 June 2016. Special rules apply for Australians aged 65 years and over, and voluntary contributions are not permitted for Australians aged 75 years and over.
Make sure that you don’t leave your extra contributions too late – the approval process can take a while, so get in as soon as you can to ensure you make the most of the financial year.
Get your arrangement in writing, and have it signed before the contributions commence
A salary sacrifice arrangement is a contractual arrangement between you and your employer and for your own protection, a written agreement ensures you can confirm the terms of the agreement, if there is any confusion. You can even include the timing of the payment of the super contributions in the agreement. Will it be paid at the same time as you receive your weekly, fortnightly or monthly pay, or does the employer intend to pay the super contributions less regularly than your regular pay? Always check the timing of super contributions.
If you’re struggling with your super, you should consider consulting a financial planner.
Note: The concessional contributions caps for the 2016/2017 financial year are not affected by the 2016 Federal Budget announcement to reduce the size of the annual concessional cap from 1 July 2017. The proposed lower concessional cap of $25,000 for all age groups, is effective from 1 July 2017.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the information, consider its appropriateness to your circumstances.
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