New salary sacrifice thresholds
What is salary sacrificing?
This is an arrangement where you agree to forego part of your future salary or wages in return for your employer providing benefits of a similar value. A common benefit obtained for sacrificed wage or salary income is superannuation contributions.
Why salary sacrifice to superannuation?
By making superannuation contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Often, this amount of tax is less than what you would pay if you were instead subject to PAYG withholding tax on your earnings.
'Substantially self- employed' people can currently claim personal tax deductions for superannuation contributions, provided that no more than 10% of their assessable income is from salary and wages.
Salary-sacrificed contributions are treated as 'employer' contributions. So, if you are under 75 years of age, your employer can claim a tax deduction on the salary-sacrificed contributions they add to your superannuation on your behalf.
As with all good things, there are limits!
As part of the 2009 federal budget, the cap on concessional contributions has been reduced for members under age 50, from $50,000 to $25,000 for each income year.
For those members aged 50 or over, the transitional cap has been reduced from $100,000 to $50,000. The transitional cap will cease after 30 June 2012, when all concessional caps will drop to $25,000.
Also, from 1 July 2009, salary-sacrificed superannuation contributions are now treated as "notional assessable income" in your personal income tax return. This measure was introduced to close an existing loophole that meant salary sacrificing into super artificially reduced assessed income for child support purposes and many Centrelink benefits.
The changes from 1 July 2009 to notionally assess salary-sacrificed super contributions as salary and wages income may see many self-employed people fail the '10% rule' and be unable to claim personal tax deductions for superannuation contributions.
Things to consider if you are already salary sacrificing into superannuation;
- Any concessional contributions over the cap are taxed at the top marginal rate, currently 46.5%, including the Medicare levy. You need to review your level of salary sacrifice contributions during the financial year to ensure your concessional contributions are below the cap.
- If you are making salary-sacrificed contributions as part of a transition to retirement strategy, you may need to review the contributed amount and your pension payment against the new caps.
Despite the recent federal budget changes, salary sacrificing into superannuation is still a legitimate way of minimising your income tax bill. However, the lower concessional contribution threshold limits mean that care needs to be taken to ensure you stay within the rules, otherwise you may end up with a tax bill you hadn’t counted on.
Please contact us for more information on how salary sacrificing into superannuation may suit your personal financial circumstances.
Source
www.ato.gov.au “Salary Sacrificing Super” (accessed 8 July 2009)
http://www.ato.gov.au/super/content.asp?doc=/content/38172.htm&page=1&H1