Superannuation For Dummies by Trish Power

Author:Trish Power
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-02-23T16:00:00+00:00

Sacrificing your salary

You may be able to make superannuation contributions from your before-tax salary, known as salary sacrifice. The salary sacrifice amount is treated as an employer contribution, but it is usually in addition to the Superannuation Guarantee amount (refer to Chapter 6) that your employer contributes. The more you earn, the greater the benefit of salary sacrifice because, in Australia, you pay a higher rate of tax when you earn more income. Check out Chapter 11 for more information about your salary sacrifice options.

Tax benefits can be spectacular if you make before-tax (concessional) contributions to your super fund, rather than paying the top MTR on your non-super income. For example, you can take $10,000 as income (less $4,500 income tax at 45 per cent) and contribute the remaining $5,500 as an after-tax contribution. Alternatively, you can pay $10,000 to your super fund as a before-tax contribution. If you contribute $10,000 to your super fund as a before-tax contribution, you pay the contributions tax of $1,500 instead of income tax of $4,500 leaving a much greater amount for investing (refer to ‘Before-Tax Super Contribution’ column under ‘45%’ section in Table 12-3). Over a 20- or 30-year period, contributing this amount and paying 15 per cent on any earnings instead of your MTR can mean an account balance worth thousands of dollars more. You can also benefit from salary sacrificing if your MTR is 40 or 30 cents in the dollar (refer to Table 12-3). In other words, contributing to super can mean you pay less tax and accumulate a much larger benefit in a shorter period of time.

Claiming tax deductions for contributions

If you’re mainly self-employed or not working as an employee (or you only receive a small part of your income from an employer), you have the flexibility of when and how much you contribute to a superannuation fund. In Chapter 11, I talk in more detail about being your own boss, or at least being the boss of your concessional (before-tax) super contributions.

Example

As a self-employed person, if you contribute $10,000 (the equivalent of a $5,500 after-tax contribution at the highest MTR) to a super fund, you can claim a tax deduction for $10,000. Your tax-deductible contribution is subject to a contribution tax of 15 per cent. Over a three-year period you’re roughly $4,500 better off by making a tax-deductible contribution rather than investing that money outside the super system (refer to ‘Before-Tax Super Contribution’ column under ‘45%’ section in Table 12-3). Imagine the tax benefits of such a super strategy over a lifetime.

Never forget that super is about saving for your retirement. Tax incentives are available to encourage you to save for your retirement, but the tax-effectiveness to you of super depends on how much you earn, your existing commitments and any investments you may have. For example, if you intend to make concessional (before-tax) contributions as a way to offset a capital gains tax bill (refer to Chapter 11), then you need to ensure that the

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.