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Salary Sacrifice benefits

Discussion in 'General Investing Discussion' started by moderatortb360, 17th Feb, 2013.

  1. moderatortb360

    moderatortb360 New Member

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    Bundall Qld
    does anyone have a view on the benefits of salary sacrifice and superannuation ? the limit was $50,000 last year but now its $25,000.
     
  2. Andrew Newman

    Andrew Newman Well-Known Member

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    5th Nov, 2008
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    Hi

    Making salary sacrifice contributions to super is a great way to create wealth.

    I have provided a link which has an example of making salary sacrifice contributions of $250 per month, where you could accumulate an extra $169,000 in super. The assumptions are included.
    Make salary sacrifice contributions to super

    Kind Regards
     
  3. GregR

    GregR Reid Consultants

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    Berwick Vic
    Superannuation is a tax vehicle, the funds are locked away until effectively retirement > 60 in many cases (especially for younger aged folk) and depending on which superannuation path you take, you may get better or worse returns than average market. It may depend some on your asset portfolio choice and allocation but the research strongly show industry funds outperforming retail funds in nearly all years for the last 20 years or so. Whether you go down a path of SMSF or APRA small funds is another decision depending on what interest you have in having your own choice.

    The risk with superfunds is government changing regulation time and time again, often to our detriment. The lowering of the concessional contributional level to $25k (which includes employer SGC) is a case in point. For an employee, salary sacrificing into super may have a tax benefit depending on your marginal tax rate on your income. The downside is that your funds are locked away and cannot be used where you may get greater benefits outside super if used to invest.

    Not all employers will offer the opportunity and you need to make sure if you do, SCG will not be negatively affected. You can still make substantial non concessional contributions at any time.
     
  4. robbiejuve

    robbiejuve New Member

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    Hi, I have a question on this topic.

    With regards to GregR's last comment above, "Not all employers will offer the opportunity and you need to make sure if you do, SCG will not be negatively affected. "

    I assume that refers to your employer adjusting base salary by the salary sacrificed amount and paying 9% on the adjusted amount?

    I have confirmed that my employer will pay SGC on my salary after sacrifice so adjusted salary

    What else needs to be considered in this situation when making the decision to sacrifice? It still appears to be beneficial to me but I'm not sure if I am missing something here.

    Thanks,
     
  5. GregR

    GregR Reid Consultants

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    I did mean that some less generous employers will use your now lower salary after sacrifice to calculate their SGC component as a legal wiggle. Better employers will use your before sacrifice salary which they would have had to pay if you did not sacrifice.

    Say a $100k salary, use 9% SGC = $9k, contribution tax - 15% = $7,650 into your superfund. After tax salary = approx $25.2k ignoring medicare and additional flood levies etc. Overall after taxes = $74.8k + $7.6k = $82.4k.

    Salary sacrifice say $10k (keep in mind contribution limits).
    Salary = $90k, tax = $21.5k so living on $68.5k. Super = $18.1k ($10k sal sac + $8.1k SGC) less 15% = $15.4k. Overall after tax = $83.9k.

    Some benefit but not huge. It will depend on your marginal tax rate being > 15%, whether you can afford to live on the lower after tax salary ($6.3k) and whether locking your funds away until retirement makes sense.

    In my earlier post, I did mention some of the risks associated with super.
    I hope this helps.

    Greg
     
  6. robbiejuve

    robbiejuve New Member

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    I really appreciate the prompt reply Greg.

    I guess its a matter of crunching the numbers and working out the benefit after the reduction in employer SGC

    Also opened up communication with HR to see if they can consider being more generous :)