As the end of year fast approaches, it’s a good time to think about how you can keep more money for yourself and work towards being better off in the new year.
Before the christmas holidays start shifting into full swing with christmas events, gift-giving and maybe even holidays, take a moment to think about whether you can give yourself more starting this coming year.
It makes financial sense to put money away for your future rather than sending it to the tax office never to be seen again. So if your employer allows you to salary sacrifice some of your pre-tax income next year, you may be able to put an agreement in place (be sure to get it in writing) so you can boost your super and reduce your tax bill at the same time.
In a nutshell, salary sacrifice lets you pay extra money into your super before your salary is taxed. The money is taxed at a concessional rate of tax of 15% which is probably less than the tax rate applied to your earnings. But be aware there’s a bit of a catch, because you can only deposit a limited amount each year ($30,000 if you’re under 50 in the 2016/17 financial year; $35,000 if you’re older).
Let’s look at how salary sacrifice can work.
Angie works as a marketing consultant. She’s 50 years old. Her goal is to start using her salary of $80,000 more effectively so she can build her super sufficiently.
Using her current savings plan she saves about $10,010 a year—each fortnight she directs $385 from her pay into her regular bank account.
When she originally sought financial advice, she asked whether it was a good idea to deposit the $10,010 from her savings account into super (after-tax dollars) or whether there was a better way.
Let’s see how Angie adds $15,282 to her super (instead of $10,010) without reducing her take-home pay.
|Judith’s income tax position||After-tax contributions||Salary sacrifice contributions|
|Less salary sacrifice contributions||Nil||($15,238)|
|Reduced gross salary||$80,000||$64,672|
|Income tax, Medicare levy||($19,147)||($13,829)|
|After-Tax contributions to super||($10,010)||Nil|
|Take-home pay after contributions||$50,843||$50,843|
|Net income tax saving||$5,318|
|Judith’s super contributions position|
|Super Guarantee contributions (9.5%)||$7,600||$7,600|
|Salary sacrifice (pre-tax) contributions||Nil||$15,238|
|15% contributions tax||($1,140)||($3,425)|
|Total net concessional contributions||$6,460||$19,413|
|Plus non-concessional contributions to super||$10,010||Nil|
|Total net contributions for year||$16,470||$19,413|
|Additional net contributions into super||$2,943|
By salary sacrificing pre-tax dollars into super Angie significantly increases her super contributions for the year and benefits in several ways:
If you wonder whether you could be making more of your money this coming year then start a conversation with us. We’ll help you work out the financial strategies that can help you reach your goals and whether you can save tax and keep more for yourself for retirement. It’s never too late or too early to put plans in place for your future. Call us today.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Futuro Financial Services Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Steve May, Luke Styles and May Wealth Pty Ltd T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guide and business/adviser profiles.
May Wealth Pty Ltd ABN 71 612 234 518 trading as Steve May Financial Services is a Corporate Authorised representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478.
Steve May and Luke Styles are Authorised Representative’s of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478