Salary Sacrifice And Your Super Fund Options
Salary Sacrifice, that doesn’t sound so good, I would much prefer a salary boost. Of course most of us understand what salary sacrifice means in the context of tax and super and that it actually does generally mean a salary boost if used wisely.
First things first, let’s define what salary sacrifice means for you and me. Salary sacrifice is an arrangement between an employer and an employee to forego future wages in exchange of certain benefits of similar value. These benefits could include one or any of these examples: extra super contributions, car fringe benefits, allowance for school fees, child care, loan repayments.
However as with all things financial a general good idea can be terrible if you do not know what you are doing. It is therefore always a good idea to consult a financial advisor every time you are considering asking or accepting a salary sacrifice.
What are the requirements?
There are a variety of requirements that must be met before you can make a legitimate salary sacrifice arrangement. For instance you can only make salary sacrifice for wages you are yet to receive, it cannot be retroactive. The salary sacrifice must also fall under some certain categories and formats which include the list of benefits we mentioned above.
You might also have to pay an administrative fee to your employer for the managing of your salary sacrifice arrangement. Remember, the pen pusher behind the desk has to eat and feed his family also.
What are the benfits of salary sacrifice for super?
Super contributions do not fall under fringe benefits for tax purposes when paid into a complying super fund. This provides a list of benefits to your employer. He won’t have to pay fringe benefits tax on the super contributions or include the super contributions as a reportable fringe benefit on your payment. These payments are also deductible for your employer and you can more often than not claim a tax deduction also.
Contributing towards your super fund with a salary sacrifice also reduces the income assessable for tax and the amount you invest in your fund is taxed at a maximum rate of 15%.
However there is a limit in the amount of cash you can contribute towards your super fund before you start having to pay extra tax and it is not longer a cost effective investment. Make sure you check our website or the Taxation Office for more details about paying super fund contributions and your tax.