You could be retired for 1/3 of your life: How will you pay for it?
If you put pre-tax income into super, you could build more super and pay less tax. One way to do this is to ask your employer to put some of your pay into your super instead of putting it all into your bank account. This is known as 'salary sacrifice'.
Key benefits include:
- Reduced taxable income
- Helps maintain lifestyle in retirement
- Salary 'sacrificed' into super is normally taxed at 15%* instead of the normal marginal tax rates
Could salary sacrifice work for you?
Salary sacrifice arrangements are generally suited to people who don't have a lot of high-interest debt to pay down and who have a surplus cash flow (that is, they have money left over after they've been paid and taken care of living expenses).
You need to be an employee to salary sacrifice. If you're a contractor or self-employed, you could still make extra payments to your super and then claim a tax deduction if you meet the criteria.
You can generally put up to $25,000 into your super before tax (this includes the amount your employer pays as a Super Guarantee of at least 9.5%). So if your employer pays an SG contribution of $10,000 a year, you can salary sacrifice up to $15,000.
However, you may be able to contribute more than the $25,000 cap under the 'carry forward' rule explained below.
The carry forward rule from 1 July 2019
For most people, the concessional contributions cap for the 2019/20 financial year is $25,000.
However, there are some options that allow you to contribute more than the cap, including the ‘carry forward’ rule. From 1 July 2019 you can carry forward any unused amount of the concessional contributions cap for up to five previous financial years, if your total super balance is less than $500,000 on 30 June of the previous financial year (covering all super accounts in your name). Note, any unused cap can only be used from the 2019/20 financial year.
For example, if your before-tax contributions in the 2018/19 financial year totalled $10,000, you could carry forward the additional $15,000 over to the 2019/20 financial year. This means you could contribute up to $40,000 in 2019/20.
Calculate the difference
You probably have a rough idea of how much of your salary you can comfortably afford to contribute. There are limits to how much you can salary sacrifice, but you probably won't want to sacrifice that much anyway.
ASIC's Moneysmart website has a calculator to help you see what your pay and super might look like with salary sacrifice.
If you have any questions, call us between 8am and 8pm (AEST/AEDT) on 1800 222 071 weekdays.
The first step is to check with your employer to see if this is something they can do. If the answer's yes, then let them know how much you'd like to sacrifice. Your employer and TWUSUPER will do the rest.
As employers have their own processes for applying for salary sacrifice, please speak to your employer about the next steps.
If you can't proceed with a salary sacrifice arrangement, you could qualify for a tax deduction if you make contributions to your super from your after-tax pay.
Note: General advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, consider its appropriateness.
*Conditions apply for income earners of over $250,000.