Sacrifice your Salary to Super
You've probably heard the term 'salary sacrifice' in conversation but what does it really mean? Salary sacrifice is an arrangement between you and your employer to forego part of your salary in return for your employer providing benefits of equal value. A common form of salary sacrifice involves foregoing part of your salary and having it paid into super instead. It is a good way to boost your super and save tax.
By 'sacrificing' some of your before-tax salary and putting it into your super fund, you reduce the tax you pay on your take-home salary and the portion you sacrifice to super is taxed at the special rate of 15%. This tax rate is generally less than the marginal tax rate dependent on your taxable income. This particularly suits higher income earners due to the higher marginal tax rates.
This is why pre-tax contributions are also known as 'concessional contributions' because there are tax concessions with these types of contributions.
Note, there is a limit to how much you can contribute to super each financial year to be taxed at lower rates and this is called the 'concessional contributions cap'. If you contribute over these caps, you may have to pay extra tax so it's important to keep track of contributions.
If you think salary sacrificing could suit you and form part of your tax minimisation strategies, make arrangements with your employer. They will ensure this amount is allocated out of your pre-taxed salary whilst still maintaining their 9.5% super guarantee contributions based on your original salary.
Still unsure? Give our Advisors a call and we'll help you ensure you're minimising your tax with this and other strategies.
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