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How does salary sacrificing work?

Q. I keep hearing about the value of salary sacrifice but how does it work? And can you do it and still get access to your money before you retire?

A. To keep it simple, salary sacrifice means that you tell your paymaster that you want to, say, put ten per cent of your gross pay into super, pay health fund fees, school fees, child care costs, and loan repayments. Salary sacrificing is all about timing. You cannot retrospectively salary sacrifice. You have to nominate ahead of earning the income that you intend to salary sacrifice. With some of the non-super sacrifices, there can be fringe benefit tax effects, which reduce the appeal of the strategy.

There’s no FBT (fringe benefits tax) on a super salary sacrifice if the fund is a complying one — this is important. Super contributions are deductible for your employer and a lot of bosses don’t know that. Super contributions are concessionally taxed in the fund, so if you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. This can be a lot less than your usual tax rate on your wage or salary and is a great way to turbo charge your super fund.

By the way, the tax office website has some great info on the benefits of salary sacrifice.



Published on: Wednesday, December 30, 2009

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