If you are tempted to blow your bonus on a holiday or car upgrade, consider this. Salary sacrificing your bonus enables you to put pre-tax money into your super, therefore reducing your taxable income and the amount of tax you pay in that year. The benefits of salary sacrificing are subject to your marginal tax rate. Remember that every $1 saved in tax is a $1 earned!
How salary sacrifice can help you save on tax and grow your wealth
One of the best ways to grow your wealth is by putting a little extra into your super each pay before you’re taxed or on receipt of your bonus. This is known as salary sacrifice. When you add extra into your super, your money will generally be taxed at 15%. For most people, this will be much less than your marginal rate, which could be as high as 47%.
[1] Your salary sacrifice contributions are counted toward concessional before-tax contributions, capped at $25,000 per year. [2] The benefit is two-fold; your future self benefits from the additional money saved, and, the effect of compounding any returns on your super will boost your balance even more.
Read more about salary sacrifice or arrange a quick virtual coffee with one of our Financial Planners in Subiaco.
[1] The highest marginal tax rate is 45% plus 2% Medicare levy. Concessional contributions such as salary sacrifice are generally taxed at 15% when received by your fund. However, a higher rate of tax may be payable on part or all of these contributions if your income and before-tax contributions are more than $250,000 in a financial year.
[2] Concessional (pre-tax) contributions are limited to a cap of $25,000 in a financial year, with additional tax applying for contributions in excess of this cap. Concessional contributions include employer super guarantee payments, salary sacrifice contributions and any personal contributions for which you claim a tax-deduction. Unused concessional cap carry forward: If you haven’t reached your concessional contributions cap during a financial year, you may be able to carry forward unused cap amounts to use in future years. Access to these unused cap amounts applies from 1 July 2019 and is limited to people with a total superannuation balance less than $500,000 and to unused amounts from the previous five financial years (starting from 1 July 2018).