Many employers offer salary sacrifice, a strategy where rather than taking all your salary as income you contribute a portion to super. Salary sacrifice contributions usually attract a tax of just 15 per cent, which is about half the average marginal tax rate. Instead of investing money outside super and paying a higher tax rate, you can contribute it to super and have more money to invest for your long-term future.
You will need to make a prior arrangement with your employer before you can salary sacrifice. This means you must have an arrangement in place before performing any work. Ask your employer if you can make salary sacrifice contributions to your super fund. You may be able to contribute one-off payments like your annual bonus using salary sacrifice providing you make arrangements prior to your bonus being awarded.
Currently there are no limits to how much you can contribute to super and claim a tax deduction. However, age-based limits do apply to how much your employer can contribute and claim a tax deduction, which may impact how much you can salary sacrifice. These limits are based on age apply until 30 June this year.
(2006/07 financial year)
35 - 49
50 to 70
These limits will cease to apply from July 1 and caps will be introduced limiting the amount you can contribute to super and claim a tax deduction. Both your compulsory employer contributions and any salary sacrifice contributions you make will count towards this limit. From 1 July, People aged under 50 (including the self employed) can claim a full tax deduction of up to $50,000 for contributions made to super. For those over 50, this limit increases to $100,000 a year until 2012.
By Robin Bowerman
11th May 2007
Principal & Head of Retail, Vanguard Investments Australia