Is it the right time to salary sacrifice?

When you salary sacrifice to superannuation you and your employer agree to earmark a portion of your salary for your employer to contribute to superannuation for you. These contributions to superannuation will be made at the same time as your employer makes your superannuation guarantee payments or at other times if you make that arrangement.

As with anything, there are advantages and disadvantages.

The upside

The advantage of this for middle to high-income earners is that these savings are taxed at only 15% (the superannuation contributions tax). If you invest with after tax dollars you must pay tax at your marginal tax rate (up to 46.5%) before you invest, so there is less available to invest. Remember too that investment income within superannuation is taxed at a maximum of 15% so your money grows faster there.

Another advantage is that it’s an excellent form of “forced savings”. What you don’t get in your hand, you can’t spend!

Be aware of this downside

With salary sacrificing, your taxable income is your gross income less the amount that you salary-sacrifice. This is the salary on which your leave payments and superannuation guarantee payments are made. If you are still salary sacrificing when you retire you may find that your unused long service leave and holiday leave are paid at the taxable income rate rather than the gross rate. This could lead to a much lower payment and could negate all of the benefits of your salary sacrificing.

Every situation is different. For more information please contact us.