Salary sacrifice process question

Greetings All

I'm considering SS after tax funds at a point in time each year.

From what I know, you have to check what the employer contributions were YTD and then inform the superfund before making that contribution.

I would be doing this to achieve
A) tax deduction to reduce overall income tax
B) start building up super balances


Could someone please explain the process here?

 

Go onto your super funds website.

 

are you doing a salary sacrifice or personal deductible contribution ? the two ways are different although the overall outcome is pretty well the same.

 

Sorry you are correct. It's a personal deductible contribution. I put SS there as this underlines this process

 

ok your super fund will be able to provide the form to complete and your tax agent will be able to.check your current superannuation contributions via the tax agent portal.

 

The process is actually initiated through single touch payroll which is mandatory (except a closely held who still has to report through a tax agent so why not use STP?... We charge $440 for the non STP option to discourage it). We use Sage Accounting which is a non-retail accounting software solution for $20 a month that includes bank feeds, accounting loads of full features includinga complete timesheet / payroll and compliance package with employee cloud etc. It saves clients more than they pay to subscribe and we guarantee it !!! (Nobody even comes close to saying its not true). Typical client accounting costs can plummet with the right software or increase with the wrong one.

The payment of all employer super is to a clearing house and should NOT be paid direct to a fund. Thats been the case for several years. The clearing house process will split between SS and SGC so the fund allocates it correctly. Not using the clearing house means the contributions cant appear in the ATO tax agent online services account until an annual reporting by the fund occurs a year later.

The ATO use clearing house and STP data to now track and trace super in real time. Not following the process can lead to penalties and issues with them querying underpayments. Technically, paying direct to a fund breaches super guarantee obligations. Fund often dishonestly fail to mention this and encourage direct contributions contrary to law.

 

Hi
Found this post whilst researching personal contributions.

I am trying to understand the difference between the two options, would you mind elaborating on the comment.

Thanks Will

 

Salary sacrifice is done through your employer/payroll - some employers can't be bothered.

Personal contributions you pay yourself directly to the fund, and if you want a tax deduction up to the $27,500 cap you need to notify the fund - they will have a form or online process. Make sure to follow their instructions, and you need to have confirmation from the fund before you lodge your personal tax return claiming any deduction.

 

Salary sacrifice is taxed at 15% compared to your marginal rate + medicare

Personal contributions have already been taxed at your MRT etc & attract no further tax impost

 

that isnt correct.

 

Thx, even for after-tax contributions up to the $100k+ limit?

 

for the non concessional contributions there is no tax by the fund (unless you got into excess non concessional tax territory)

but for the concessional contributions there is 15% tax on those contributions whether made by salary sacrifice or via a personal deductible contribution

 

Thanks to all that replied to my post.

Mike.
When you say the the overall outcome is pretty much the same, does that mean at some point you pay sane tax, and the initial benefit of salary sacrifice is nullified?

 

Maybe an example best illustrates it

BOB'S GROSS SALARY $100K

TAX ON GROSS ~ $ 24K

1. Bob salary sacrifices $10k to super

So Bob's gross salary goes down from $100k to $90k. His tax payable is now ~ $20k. So a $4k savings

2. Bob makes a deductible contribution to super of $10k

Bob's gross salary is still $100k but the deduction of $10k brings his taxable income down to $90k. Tax payable now ~$20k. a $4k saving

Both give the same tax benefit but via a different route.

 

Mike,
Thanks for the explanation.
I understood the SS was pre tax.
I thought option 2 was post tax, didn't realise it was a "tax deductible" amount (your explanation helps my understanding).

My reason for asking the question was to see if my employer would allow / accommodate salary sacrifice.

If not I will need to go with option 2.

With that in mind when is best time to make the contribution?

A. As you go?
Which would get it into super straight away (gaining performance benefits), but tax payable until tax return done.
Or
B. Just Prior to June 30?
(Opposite of A)

Assuming I am understanding correctly, would option 1 (salary sacrifice) not be the better option, which would:

- allow immediate contribution into super and performance benefits.
- avoid 24% tax along the way.

 

i think option 2 is a lot easier. doesnt require employer approval and all the forms that go with it.

option 2 could put in anytime and achieve the same benefits with less hassle.

agree there is a timing difference in the tax position but if your employer doesnt have a salary sacrifice process in place it might be a big hassle.

 

All personal contributions are treated as non-concessional contributions until such time that the taxpayers advises the fund they wish to claim a deduction for $X. The fund then issues a notice to confirm that. Technically speaking you cant contribute concessional until you make that election. The choice can be made up to 30 June of the following year although I would not leave it that long. There are also some traps. If you rollover or change to a pension etc the ability to make the election ceases so its wise to follow the process before changing funds or startinga pension.

 

Yeah William confused things by saying "after tax funds".
They want to use their cash to make contributions, but might not have been aware of the option to declare it as a concessional contribution.

So really there's three options:
1. Salary Sacrifice direct from employer (taxed at 15% going in) - [Does this lower your gross income for the year?]
2. Non-concessional contribution - using cash in the bank, tax already paid via PAYG. (Can do up to $100,000 per year, or catch up three years total for $300,000)
3. Concessional contribution up to the cap (up to $27,000 and only pay 15% tax going in)

That's my understanding as a peasant newbie.


Giving some real numbers here would help clarify the situation. What is your Super fund? That way we can point you to the relevant sites and forms.

 

and potentially even higher concessional contributions if they have catch up amounts from prior years.

 

AustralianSuper is the fund.
I should be ok finding relevant forms.
I mainly want to research best option.

Which sounds like Salary Sacrifice direct from employer