In Times of Market Volatility is Super Salary Sacrifice Still Beneficial?
Salary sacrifice into super is an arrangement between you and your employer where you choose to give up or ‘sacrifice’ part of your before tax salary directly into your super account.
Salary sacrificing into super is often more tax efficient than taking your after tax cash and investing it outside of super. This is because income can be taxed at up to 47%* but contributions salary sacrificed into super are concessionally taxed at 15% (providing you meet certain criteria).
The below table details, for someone with a $70,000 taxable income, how $10,000 pre-tax salary could be invested into super as a salary sacrificed contribution, compared to investing outside super using the amount received after paying income tax.
|Pre-tax amount||Amount in super after 15% tax||Net salary received after income tax at 34.5%* marginal tax rate||Increased amount in super|
As shown, people on a marginal tax rate of 34.5% can keep more investment dollars working for them by salary sacrificing into super#.
Some clients have questioned salary sacrificing into super during volatile and negative markets, concerned the money could fall.
Using the above example, the $8,500 invested in super would need to fall by $1,650 or around 23% before taking the $6,550 as after tax cash becomes an alternative. Tax offsets may slightly alter these results.
This example ignores how the money might be invested inside and outside of super. Assuming the same investment types this shouldn’t significantly change the result.
If you need help determining whether salary sacrifice is right for you, BUSSQ has built Skylight Financial Solutions, to help families in and around the building and construction. Visit skylight.com.au or call 1800 SKYLIGHT • 1800 759 544.
* Including the 2% Medicare levy. # Contributions into super are preserved until you retire or reach preservation age. This is general advice only not considering your personal objectives, financial situation or needs. Before acting consider the appropriateness of this information to your needs or seek advice. Skylight Financial Solutions Pty Ltd (ABN 46 076 835 848, AFSL 450139) owned by BUSS (Queensland) Pty Ltd (ABN 15 065 081 281).