Salary sacrificing into super to maximise your contribution cap

by Helen McPhee Manager Helen has 9 years’ experience in advising families, private clients and their operating businesses on superannuation. Helen specialises in superannuation regulations as well as taxation compliance. She is also actively involved all areas of SMSF’s including initial set up, contribution, pension and investment rules, compliance work, audit issues and streaming of superannuation benefits. Contact Helen

While we wait for the government to draw up legislation pertaining to the May Budget, the start of a new financial year also brings about salary reviews which can give you the chance to review available superannuation contribution strategies. While there is still uncertainty around the non-concessional contribution caps and the $500,000 lifetime cap being applied retrospectively or prospectively, the concessional contribution cap for the 2017 financial year remains unchanged and is a means of getting more into super, albeit far less than the non-concessional contribution cap.

A quick review of the current contribution caps are as follows:

  • If you are 48 or under on 30 June 2016 you can contribute $30,000 in concessional contributions.
  • If you are between 49 and 64 you can contribute $35,000 in concessional contributions.
  • If you are between 65 and 74 you can contribute $35,000 in concessional contributions providing you meet the work test; being 40 hours in 30 consecutive days of gainful employment.
  • If you are 75 or over you can only contribute mandated employer contributions eg. employer super guarantee contributions.

The standard employer superannuation guarantee rate is 9.5% for the 2017 financial year (can be higher with industrial awards). If your employer contributions for the 2017 year will be less than $30,000/$35,000 (depending on your age) you may want to consider topping up your superannuation contributions by salary sacrificing your wages into super so that you are maximising your contribution cap for the year. You should ensure that you do not breach the contribution cap so as to avoid the excess concessional contribution tax. If you have more than one employer you will need to calculate the correct salary sacrifice figure for each employer so that across all employers your total contributions do not exceed the limit.

If salary sacrificing, consider the Division 293 tax which applies to individuals with income and concessional contributions greater than $300,000 a year. Tax of 15% is imposed on taxable contributions that were made during the year where income is above the $300,000 threshold. This extra tax can be paid personally or from your super fund. If you are salary sacrificing into super the extra contributions could push you into the Division 293 tax bracket.

Salary sacrificed contributions are considered to be reportable employer contributions. Your employer must include this amount on your annual PAYG Summary. If you have made salary sacrificed contributions and do not have this amount in your PAYG summary, you should speak to your employer about amending it. The reportable employer contributions are not assessable income in your tax return however they can be used when calculating income tests for certain government benefits and the Medicare levy surcharge.

Mutual Trust Pty Ltd ACN 004 285 330 (AFSL 234590). Liability limited by a scheme approved under Professional Standards Legislation. For participating members (other than for the acts or omissions of Australian Financial Services Licensees). This information is general in nature and subject to change. It does not constitute tax, legal or financialadvice. We recommend you seek advice specific to your circumstances before taking any action. Copyright © 2014 Mutual Trust Pty Ltd.
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