F all of the strategies around superannuation, one of the better ones for some people is salary sacrifice. Done properly, a salary sacrifice strategy can significantly boost your retirement nest egg, reduce your annual tax bill and still leave you with enough money to live on. How is that possible? Well, the key is that the amount of your pay that is ‘sacrificed’ into super is taxed at a maximum of only 15 per cent, much less than the marginal tax rates that apply even to middle income earners.
That money that is salary sacrificed into super is no longer considered when calculating income tax, effectively reducing your gross pay and your annual tax bill.
The end result can be that the amount of money that arrives in your hand every pay period may be only slightly lower but your overall super position can improve greatly.
In short, your current standard of living is hardly changed but your future standard of living is being enhanced.
While salary sacrifice is generally not as effective for lower-paid workers, there is a small benefit to be gained even for workers who earn above $18,201 when the 19 per cent marginal tax rate kicks in.
At the high income end, workers need to be careful not to breach a few caps: the $25,000 annual cap on concessional contributions, the lifetime cap of $500,000 for after-tax concessional contributions and the $1.6 million total cap on super that can be transferred into a retirement account.
In practice, these caps will mainly concern very high income earners.