Salary sacrificing is a valuable saving tool, reduces your taxable income and can maximise growth within your superannuation in preparation for retirement.
A common misconception is that salary sacrifice only benefits high- and middle-income earners. However, regular, affordable contributions go a long way and if you are a low-income earner, you may be eligible for the government co-contribution scheme whereby the government will contribute up to $500. As little as $10 a week may make a huge difference when taking into account compounding interest.
Another common misconception is that salary sacrifice is limited to superannuation. However, it is applicable to a wide range of benefits including, but not limited to:
- Novated leases ie car purchases and car loans
- Mortgage repayments (for owner occupied homes, not investment properties)
- Tuition fees
How to salary sacrifice?
Salary sacrificing is an arrangement between you and your employer. Confirm with payroll that this is possible and set up an agreement to establish how much and how often you wish to sacrifice.
Important things to remember –
- There is an annual concessional contribution cap of $25,000 per financial year (this is the combined total of your employer Super Guarantee contributions and salary sacrifice contributions).
- You cannot claim deductions or offsets on the sacrificed amounts.
Benefits of salary sacrificing?
The mains benefits are:
- Less tax – you only pay tax on the reduced salary and it may take you to the lower threshold
- Boosts your cash flow – as your income tax liability should be less, you may find that you have more cash in your back pocket
- A great saving tool – perfect for those who struggle to put funds away each week to pay off existing loans
In short, salary sacrificing does not have to be viewed as a sacrifice. With so much to benefit from, it makes sense to consider whether this strategy is suitable to you.
If you require help with understanding what’s best for you, the team at Superannuation Advice Australia can help. Contact us today!