For many of us, we are able to contribute to superannuation for our entire working lives. Thanks to the superannuation guarantee arrangement, employers are obliged to contribute a minimum percentage (currently 9.5%) of your earnings to your nominated super fund. While this might seem like a lot, depending on your ideal cost of living in retirement, you may wish to contribute additional money to boost your savings. One way of doing this is through salary sacrificing.

Salary sacrificing is where you establish an arrangement with your employer to pay a portion of your pre-tax salary to your super account as a concessional contribution. There are a few benefits to this:

• Boost to your overall contributions to your super fund
• Reduce your taxable income, therefore, paying less tax
• Works as a forced saving so you don’t need to worry about putting money away to contribute later

To show you how this could work for you, here’s an example for someone earning $90,000 p.a.:

The above example shows how your after-tax pay would be affected if you salary sacrificed $10,000 in one year, the difference is $6,550 per year or $126 per week. If this looks too much for your circumstance, perhaps consider reducing your super contributions to $5,000. Now your take-home pay is $64,658, therefore an after-tax reduction of $3,275 per year or $63 per week.

Salary sacrificing is a great tool to help boost your super savings, however, there can be some traps for young players. Be sure to speak with your financial adviser to establish how salary sacrificing can best work for you.

Please note this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored superannuation or financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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Superannuation is still one of the most tax effective places to house your retirement funds.

Have you thought about contributing to superannuation?

Concessional contributions are contributions made into superannuation for which a tax deduction is claimed; such as superannuation guarantee contributions (SGC) or salary sacrifice contributions.

At the present time the cap is between $30,000 and $35,000 pa depending on your age, and this is scheduled to reduce at the beginning of the 2017/18 financial year if the 2016 budget becomes law.

Your employer contributes at least 9.5% per annum to your chosen fund, but working individuals under the age of 75 can contribute to their fund by way of salary sacrifice, to bring the total annual contribution up to the cap.

You need to talk to your employer to make a salary sacrifice arrangement but you will first need to calculate how much salary to sacrifice each pay period so that you still have sufficient for living expenses.

Salary sacrificing will reduce the tax that you pay personally and the greater benefit is for the higher income earners. For example a person whose top marginal tax rate is 19% plus Medicare will receive a tax benefit of 4% plus Medicare – i.e. the difference between the marginal tax rate and the contribution tax rate in super, whereas someone who earns $75,000 will gain a tax benefit of 17.5%.

Did you know that you can also make after-tax superannuation contributions?

If you have accumulated money that you have no immediate need for and would like to add to your retirement benefit, it is also possible to contribute this to superannuation. It is not taxed upon entry to your superannuation account, but once the contribution is made you will lose access to that money until you meet a ‘condition of release’. The most common condition of release is reaching age 60, but there are restrictions on how much you can withdraw until you are fully retired.

A lifetime cap of $500,000 (indexed) will apply to non-concessional (after-tax) contributions and will include all after tax contributions made on or after 1 July 2007 with immediate effect from 3 May 2016. This is subject to legislation of the budget.

Any after tax contributions made before budget night (7.30pm on 3 May 2016) that exceed this cap, may remain in superannuation without penalty.

Please note: Some superannuation information is subject to legislation of the recent Federal budget, so are government proposals only at this stage, and not yet law. The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs. If you would like to recieve more tailored advice, please contact us today.