Sacrificing some of your salary into superannuation can be a tax effective way to boost your savings for retirement. See how in the following example:
John (age 45) earns $70,000 p.a. and wants to increase his retirement savings. He has $3,275 of after-tax income (surplus cashflow) to invest. This is equivalent to $5,000 p.a. of pre-tax income he can salary sacrifice into super.
John decides to salary sacrifice his $5,000 p.a. and looks forward to being $60,406 better off by the time he’s 65. The net value of John’s super benefit increases at age 60 as any withdrawal from super will be tax free.
Let’s look at the numbers (2017/18 financial year)
Value over 20 years (after redemption of investment)
- For the purpose of the case study John’s marginal tax rate is 34.5% (including Medicare Levy) until 65 years of age. Capital Gains Tax (CGT) and income tax are taken into account at all times. CGT discount for 12-month ownership applied (50% for individuals, 33.33% for super funds). All earnings are reinvested (less tax for income).
- Tax rate for super funds is 15%. Returns from the portfolio are 8% (5% capital gain, 3% income) both inside and outside super. 20% of the income from the portfolio is franked.
This working example is for illustrative purposes only. Past performance is not indicative of future performance.
- An additional 15% tax may apply to certain concessional contributions if your income for these purposes exceeds $250,000 in the 2017/18 financial year.
- Individuals can elect to withdraw up to 85% of their excess concessional contributions from their superannuation. Depending upon the amount effectively withdrawn, excess concessional contributions may also count towards the non-concessional contributions cap.
To discuss whether a Salary Sacrifice Strategy is appropriate for your circumstances, call Newcastle Financial Planning Group today on 4032 7934 to book a complimentary meeting with one of our specialist Financial Advisers.
Disclaimer: This information is of a general nature and has been prepared without taking account of your personal needs, financial circumstances or objectives. Before acting on this information you should consider whether the information is appropriate for you having regard to your personal needs, financial circumstances or objectives. This information is current at March 2018 but may be subject to change. The case study and effective tax rate are hypothetical and are not meant to illustrate the circumstances of any particular individual. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances and objectives. This information is our interpretation of the law and does not represent tax advice. Please see your tax adviser for advice taking into account your individual circumstances. RI/SCCPD/0618 RI Advice Group Pty Ltd | ABN 23 001 774 125 AFSL 238429