It’s like taking candy from a baby! It’s just so easy. It’s something that most of us would know as Salary Sacrifice.
A lot of us know it but don’t use it. There are a number of reasons for this.
#1 We’re not going to see the money for a long time!
True, however I’m sure we’re in the same boat. We, at some point in time want to finish working for a living or at least reduce our working hours. Money needs to come from somewhere.
The government introduced superannuation many years ago to assist everyone in funding their own retirement. It’s there, so take an interest and use it to get ahead of the game.
#2 Superannuation is a bad investment!
If I got a dollar for every time someone told me this, I reckon I would be extremely wealthy.
What most forget is that superannuation is a tax structure first and foremost, and second, an investment.
Many people combine the two and therefore it has created a sour taste in people’s mouths.
In simple terms, superannuation is a tax structure first, the maximum tax rate on earnings is capped at 15%, although most super funds pay less than this, and 10% on capital gains if the asset has been held for longer than 12mths.
You have choices about how you can invest. Most people believe they don’t have a choice. You have the choice and control, no matter what anyone else tells you. If you want greater control over your investment decisions then look for an alternative that gives you this option.
It’s your money, take an interest and take control back.
#3 Super is so confusing! The government keeps changing the rules!
I hear you, it’s hard to keep up and know what the rules are. You also might even be fearful of what the rules will be in the future. Even as an adviser it is not easy keeping up with the amount of rule changes the government continually brings in.
It’s better to focus on what we can control, block out all the noise.
However, what most people don’t realise is that super is still the best tax structure going around. We all like to save on tax, don’t we? It’s an Australian pastime.
So how do we get a GUARANTEED return of 5%, 26%, 35% or even 55% on our money?
This part is pretty simple, it’s the net tax benefit of making a contribution to your super with pre-tax dollars rather than receiving the funds in your own hands post tax.
Let’s use an example:-
Jack works as a manager earning $120,000pa. He now wants to contribute to his super $1,000 pre-tax (Salary Sacrifice).
Based on Jack’s income of $120,000, his $1,000 would be taxed at 37% (plus Medicare Levy). That is $370 tax if he decided to take this in his hands.
However Jack wants to contribute this to his super fund pre-tax (Salary Sacrifice). Instead of tax of 37% (plus Medicare Levy), he only pays tax of 15% on the amount he contributes to super.
In this instance he pays tax of $150 instead of $370 (plus Medicare Levy). Rather than having a net amount of $630 if he receives the funds as income, he now has $850 to invest inside his super fund. That’s a 35% return on his money before he invests it.
For every $1,000 that Jack contributes to his super, that equates to a measly $12.12pw.
That’s one bought lunch a week! Most probably, one more we don’t need.
Tell me where you can get a GUARANTEED return on your money like Jack here?
So, how does that work if I’m in a different tax bracket?
|Income||Return (excluding Medicare Levy)|
|$18,201 – $37,000||5%|
|$37,001 – $80,000||26%|
|$80,001 – 180,000||35%|
As Australians we love to gamble and we love saving on tax. This gives you the opportunity to save on tax and rather than taking a gamble on something like the lotto, why not take the GUARANTEED return?
There are limits to how much you can put in!
Over the years the government has reduced the amounts that can be put into super. Given these changes there is a need to plan earlier in life to ensure you can take full advantage of the tax benefits to ensure you have a nest egg that is going to give you the life you want post work.
What are these limits?
For the period 1 July 2016 to 30 June 2017:-
If you were over the age of 50, $35,000 yearly limit.
If you were under the age of 50, $30,000 yearly limit.
New rules coming in operation from 1 July 2017:-
For everyone the yearly limit will be $25,000.
One of the new changes, the government has brought in, is that if you have not reached your limits and you have spare cash you can make a tax deductible contribution prior to the end of the financial year. This can done from the 1 July 2017 going forward. You just claim it in your tax return. I know how much you like a tax refund at tax time!
Contributions included are employer contributions (for most 9.5% of your salary), salary sacrifice contributions or self-employed deductible contributions
So, as you can see you need to be on top of your contributions. It’s not something you can just ignore any more.
Hope that’s been useful.
You have two choices, you can go it alone and mumble your way through, or alternatively, you can take the fast lane.
If you’d like to fast track the process, feel free to reach out and I’ll share some of what I’ve learnt.
Book your 15 min phone chat by giving Glenn a call on 1300 558 713 or 0401 253 729, or alternatively email me at firstname.lastname@example.org.
“There are only 168 hours in week. MAKE THEM COUNT!”
Written by Glenn Doherty CFP – Financial Organiser/SMSF Specialist
This information is of a general advice nature only, and has been prepared without taking into account your particular financial needs, circumstances or objectives. All information is based on Exelsuper Advice Pty Ltd’s understanding of current law as of 4th April 2017. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should seek professional advice before acting on the information contained in this publication. Taxation considerations are general and based on present taxation laws, rulings and their interpretation as at 4th April 2017. You should seek independent professional tax advice before making any decision based on this information. Exelsuper Advice Pty Ltd CAN 080 419 holds an Australian Financial Services License 428272.