Thankfully, highly qualified help is at hand!
In keeping with our normal process of shining the spotlight on those aspects of Business and Taxation that are of concern to our Clients, your INVISION Team has been turning attention and focus on this touchy subject. In this case, we have enlisted expert help and advice from Kris Martin, our ‘Go-To’ man for anything to do with Financial Advice and Estate Planning.
Kris is Managing Director of KDM Financial and Estate Planning and is well qualified to put together this general overview of the ‘Salary Sacrifice’ subject. He has also agreed to answer any specific questions you may have about this potentially prickly aspect of your Business.
You can ask Alan and his INVISION Team for an introduction to Kris, or simply pick up the phone and speak to Kris and his people directly, using the contact details below. So, here is what the experts have to say about Salary Sacrifice…
What is salary sacrifice?
Salary sacrifice is an arrangement where you forego part of your income in return for your employer providing benefits of a similar value. The most common example of salary sacrificing is using pre-tax dollars to contribute into your superannuation fund to help you save for your retirement. This money is subtracted from your taxable income, reducing the tax you pay each year.
This strategy can be beneficial as the sacrificed amount is not counted as assessable income for tax purposes. The contributions are taxed in the super fund at a maximum rate of 15% which is generally lower than your marginal tax rate.
What are the potential issues for employers?
The minimum amount of superannuation guarantee contribution (SGC) you’re required to pay for your employee is based on their ordinary time earnings base which includes any sacrificed amounts.
From 1 January 2020, entering into a salary sacrifice arrangement will not reduce your employee’s ordinary time earnings base, and therefore it will not reduce the amount of super guarantee that you’re required to pay.
What are the potential issues for employees?
There is a limit to the amount you can contribute to superannuation using pre-tax dollars. This is known as the concessional contribution cap. The current concessional contribution cap is $25,000 per financial year. Please note that this is made up of both employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction.
As of 1st July 2018, you can carry forward any unused concessional contributions cap for up to five years to increase your cap the following year as long as your superannuation balance is less than $500,000. For example, if you contribute $10,000 into your superannuation fund in the 2019/2020 Financial Year, the remaining cap of $15,000 will be rolled over to the following year allowing you to contribute $40,000 in the 2020/2021 Financial Year.
A good financial adviser can help you navigate through the complexities of setting up a financial plan. I will work with you to set your financial goals and make a plan to help you achieve them. If you wish to discuss salary sacrifice or any other strategies, please contact me at KDM Financial on 07 3369 0010 or email@example.com to arrange a complimentary meeting.
Kris Martin MBA (QUT), BBus, Adv.DFS, FChpFP, AFA
Authorised Representative No. 253782