4. Salary Sacrifice to Superannuation
| Clients |
Paul and Kylie |
| Income |
Paul – salary recently increased from $80,000p.a to $100,000p.a.
Kylie - $50,000 p.a. |
| Assets |
Owned own home
2 investment properties – positively geared |
| Need |
Paul and Kylie were comfortable with their direct property investments but wanted to continue building their assets and investments. |
| Solution |
Paul and Kylie saw their financial adviser. The decision was to sacrifice all of Paul’s recent pay rise ($20,000p.a.) into superannuation.
Monies were invested in a diverse portfolio of property, bonds, cash, international equities and Australian equities. The salary sacrificing strategy provides a total tax savings (in 2009 financial year) of approximately $5,300 per annum. |
|
Increase as after-tax salary
|
Increase as salary sacrifice
|
|
Pre-tax income
|
$20,000
|
$20,000
|
|
Less income tax1
|
($8,300)
|
(N/A)
|
|
Less contributions tax2
|
(N/A)
|
($3,000)
|
|
Net amount to invest
|
$11,700
|
$17,000
|
|
Additional amount to invest
|
|
$5,300
|
1 Paul’s marginal tax rate of 40% plus Medicare Levy of 1.5% = 41.5%.
2 Contributions tax of 15%.
In addition to the tax advantages from salary sacrificing, Paul and Kylie will also benefit from the discipline of saving, the long term projected growth in the value of their investments, and the tax effectiveness of earnings within the superannuation environment.
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