How does this work and with regards to new changes July 1 2017? I had a friend who started salary sacrificing a few years before retirement and from memory put around $200 per pay into superannuation, they mentioned that their take home pay packet was only marginally affected (I presumed as they'd now dropped a tax bracket) Is Salary sacrificing to super worth it if you have external investments, shares, property etc? Is Superannuation only beneficial if working up until retirement age and are you better off concentrating on investments outside of superannuation if wishing to retire earlier? The ATO has this which is also confusing Salary sacrifice arrangements for employees Note: Your salary sacrificed contributions are considered to be contributions from your employer. For example, if you elect to salary sacrifice 5% into your super, your employer would only have to contribute 4.5%. Similarly, if you elect to salary sacrifice 9.5% or more into your super, your employer would not have to make any additional contributions. So you should clarify the terms of the agreement if you want to ensure your employer still pays you the 9.5% super guarantee.
Salary sacrifice means that the contributions from PRE TAX INCOME are then taxed at 15%. The tax saving can be 0% (for a real low income earner) but typically between just 4% and 32%+ depending on the taxpayer marginal tax rate. To determine the benefit take marginal tax rate and deduct 15%. Income earners on $150K should seek tax or financial advice as Div 293 tax can impact the benefit too. Contributing from post tax salary may be inefficient as the money is like savings and not taxed into the fund but is taxed as salary normally. Many DIY taxpayers get super wrong and end up not sacrificing but just saving to super.
Your pay drops by $10400/yr - it may drop you into a lower tax bracket but will save you the difference between your marginal rate of say 37% to 15% (so $170 nett goes into your super vs $126 to your pocket). Your employer must still contribute 9.5% of your salary (but they could calculate their contributions on $200/wk less) - I have found most will still contribute the full amount. @Paul@PFI - what's div 93? Did the last budget make contributions deductible even without SS?
Div 293 (my typo) tax is a additional 15% tax on contributions. It used to start at $300K total remuneration income but has been lowered to $250K. It includes the super contributions + income in the test. (ie Salary $240K plus employer super of $25k = $265K so Div 293 applies) As of 1st July 2017 ALL taxpayers under the concessional contribution age can make tax deductible super contributions up to the universal $25K cap and need not salary sacrifice any more. This benefits those who are employees who may want to make a end of year top up contribution next year etc. Anyone making a personal concessional contribution must still follow the correct process for notices. If they fail to do that prior to lodgement the deduction will be cancelled and held to a be a non-concessional (untaxed) contribution.
If your employer allows you to sacrifice income for extra leave then do it. I sacrificed 2 weeks in the last 12 months and will negotiate a new 4-week pool of leave commencing in November. The boost to life -> work balance and the opportunity to travel and do things I really enjoy is worth way, way more to me than the small hit to monthly income ( income reduces by 4/52 per month ).
You are charged excess contributions tax. Many people who target to use their cap are affected as employers dont always pay the 4 quarters when expected. ie 5 quarters a year etc
They really make it harder than it needs to be don't they?? @Paul@PFI is this how the Div 293 tax works? eg1 assessable income = $240k employer super contribution @9.5% = $22.8k Total Income = $262.8k $262.8k - $250k = $12.8k (which is less than $25k) Div 293 tax payable = $12.8k x 15% = $1,920 eg2 assessable income = $300k employer super contribution @9.5% = $28.5k Total Income = $328.5k $328.5k - $250k = $78.5k (which is more than $25k) Div 293 tax payable = $25k x 15% = $3,750
Also isn't $25k now the cap in contributions - both employer and salary sacrificed. Haven't look at it greatly yet so would love to hear from someone more into it than I.
There is a universal cap for concessional contributions. The $35K cap for older persons is gone. Its now $25K for all contributions for all taxpayers under the relevant age. There is one catch. If the person has less than $25K taxable income they CANNOT make a concessional contribution of more than taxable income (prior to the deduction). ie a super contribution cant create a tax loss so a concessional contribution is limited by either the employer claiming a deduction OR the employee OR both even.
Employers are not forced to pay super of 9.5% over a specific threshold. $211040 pa or $52,760 per quarter. So if you earn $215,000 the employer can legally refuse to pay beyond $5012 per quarter
Yeah I know, I was simplifying the example, and a lot of employers still pay the 9.5% on the base salary anyway.. at least that's what I've noticed when I've run payroll analysis in the past.. Edit: $211,040 x 9.5% ($20,049) is the maximum compulsory super payable in FY17/18.
Div 293 another Govt stitch up.....like thieves in the night.........introduced in 12-13 at $300k, now reduced to $250k to grab some more hard earned!
Up to $3,750pa or a 1.5% tax increase in disguise. It was argued one reason why the deficit levy on high income earners needed to be removed. It was like a hand in each pocket
Does the universal cap for concessional contributions apply to members of a constitutionally protected super fund? I know someone who is a member of one of these funds who told me he does not have a cap on concessional contributions. I didn't know if he was correct. Super contributions - for defined benefit funds and untaxed funds
After 30 June 2017 there is a cap. Laws were changed to ensure uniform limits to both how much can be contributed or deemed to be contributed in a defined benefit fund and also the maximum balance counted towards the $1.6m limit. Defined benefit funds dont have an account balance and in many cases dont actually receive contributions and so this measure was introduced and has been widely criticised. (By Public Servants and ADF personnel). the new rules are somewhat simple and harsh. Constitutionally protected funds (ie Judiciary) may also be affected. The balance will count towards member capped $1.6m limit and prevent other contributions to other funds and a tax deduction. I read something that indicated the CPFs may refuse contributions in any event. Anyone making extra contributions because the old defined benefit didnt have "contributions " needs to seek advice. They could end up with a serious problem.
