When giving up your salary actually makes you richer
Salary sacrificing is a smart strategy at any time but with super concessional (before tax) contribution limits changing to $25,000 for everyone from July 1 2017, it's even more important to start salary sacrificing sooner to grow your retirement wealth faster.
How does it work?
The sacrificing arrangement is made with your employer in which you agree to have part of your salary diverted to super contributions. The advantage of choosing this strategy is that it’s a tax effective way to increase your super assets. Concessional super contributions are taxed at 15% when they enter your fund instead of your marginal rate of tax (which can be as high at 46%, depending on your income) providing you with less tax and increased super.
What else is changing in Super?
Other changes that will come into effect on 1 July 2017 include:
- Removing tax exempt earnings for Transition to Retirement income streams
- Allowing deduction for personal contributions without testing the proportion of employment income received (the “10% test”).
- Reducing the non-concessional (after-tax) contributions limit from $180,000 p.a. to $100,000 p.a. for those with super balances under $1.60m. If using the bring-forward rule the limit reduces from $540,000 to $300,000 over a 3 year period. Note: transitional measures will apply and clients could benefit from using the bring forward rule of up to $540,000 before 1st July 2017
- Reducing the threshold at which high-income earners pay an additional 15% tax (Division 293 tax) on their concessional contributions to superannuation from $300,000 to $250,000.
- Introducing the Low Income Superannuation Tax Offset (LISTO) to refund tax paid on concessional contributions for those with taxable income less than $37,000
- Extending the spouse tax offset; and
- Abolishing the anti-detriment payment.
- Furthermore, from 1 July 2018, those with less than $500,000 in super will be able to access a higher annual cap and make catch-up concessional contributions on a rolling basis for five years.
FMD still strongly believes superannuation offers many benefits for savers and retirees and we can work with you to make the best of these changes to suit your personal situation.
To learn more or if you need help planning your retirement, book a FREE Financial health check today.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.