The phrase sacrifice normally suggests you’re giving one thing up. However within the case of workers who wage sacrifice, there might probably be one thing to realize.
That can assist you resolve whether or not it’s one thing value pursuing, right here’s a fast overview of wage sacrificing and the way it works. You could need to think about getting skilled recommendation to work out if a wage sacrifice association is correct in your circumstances.
On this article:
- What’s wage sacrifice?
- How does wage sacrifice work?
- What are you able to wage sacrifice?
- Wage sacrificing superannuation
- Key issues earlier than committing to a wage sacrifice association
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What’s wage sacrifice?
A wage sacrifice association is once you conform to obtain much less take-home earnings out of your employer in return for advantages. These advantages are paid out of your pre-tax wage. Advantages can embrace items and companies like a automotive or laptop computer or contributions to your superannuation account.
For instance, in case your earnings was $80,000 per 12 months earlier than tax, you could select to obtain $70,000 as earnings and wage sacrifice $10,000 into your tremendous. The Australian Taxation Workplace (ATO) says you’ll solely pay earnings tax in your diminished wage. This implies your taxable earnings could be diminished to $70,000 on this hypothetical state of affairs.
How does wage sacrifice work?
Wage sacrificing is an association made between you and your employer. Some employers use a 3rd social gathering to facilitate wage sacrificing for his or her workers. As soon as it’s in place, an agreed quantity will likely be deducted out of your pre-tax wage to go in the direction of your advantages over a predetermined period of time.
The association needs to be arrange earlier than you begin the work that you’ll be paid for. You possibly can’t wage sacrifice utilizing wage and wages, go away entitlements, bonuses or commissions that you just accrued earlier than you entered into the association, the ATO says.
What are you able to wage sacrifice?
What you possibly can wage sacrifice will rely in your employer. Widespread advantages embrace contributions to your superannuation, and the price of gadgets corresponding to automobiles (normally by means of a novated lease), telephones and laptops. The ATO says that there isn’t a restriction on the varieties of advantages you possibly can sacrifice.
There are three broad classes of advantages, it says:
- Fringe advantages – corresponding to automobiles, mortgage repayments, faculty charges and childcare prices. Your employer can pay fringe profit tax (FBT) on these advantages.
- Exempt advantages – corresponding to moveable digital gadgets, pc software program, protecting clothes, briefcases and instruments of commerce. Your employer is not going to must pay FBT on these as they’re work-related gadgets.
- Superannuation – if wage sacrificed tremendous contributions are made to a complying tremendous fund, the sacrificed quantity isn’t a fringe profit and so FBT doesn’t apply, the ATO says.
Let’s take a look at wage sacrificing tremendous in additional element.
Wage sacrificing superannuation
When you’re seeking to increase your retirement financial savings or purchase your first residence, wage sacrificing into tremendous could possibly be an possibility to consider.
Wage sacrificing tremendous includes having a portion of your before-tax wage or wages paid into your tremendous account. Based on the ATO, wage sacrificed tremendous contributions are categorized as employer tremendous contributions, relatively than worker contributions. This implies they’re normally taxed on the concessional price of 15%, which is able to sometimes be decrease than your marginal tax price (that’s the tax you pay in your wage and different earnings).
Wage sacrificed tremendous contributions are paid on prime of your employer’s obligatory tremendous contributions, which is presently 9.5% of your wage.
There’s no restrict on how a lot you possibly can wage sacrifice into tremendous. Nonetheless, it’s essential to contemplate your concessional contributions cap. That is presently $25,000. Concessional contributions (corresponding to tremendous assure contributions and wage sacrifice contributions) that exceed this cover will likely be taxed at your marginal tax price plus an extra concessional contributions cost.
First residence patrons
Wage sacrificing into tremendous might also assist you save in your first residence. Underneath the federal government’s First Dwelling Tremendous Saver Scheme, first residence patrons can withdraw as much as $30,000 in voluntary tremendous contributions to purchase their first residence. This would come with any wage sacrifice contributions and the related earnings.
Key issues earlier than committing to a wage sacrifice association
Whereas a wage sacrifice association can have sure advantages as outlined above, there are some points to concentrate on. For instance:
- Wage sacrificing tremendous could also be much less appropriate when you have a low earnings. Based on ASIC’s Moneysmart, wage sacrificing is normally simpler for folks on center to excessive incomes. It is because contributions will likely be taxed within the tremendous fund at 15%. In case you are on a low earnings, this can be greater than your regular earnings tax price.
- Wage sacrificed tremendous contributions could push you over the concessional contributions cap, which, in line with the ATO, would entice further tax.
- As soon as the cash is in your superannuation fund, it’s usually there till you retire. There are some restricted methods to probably entry superannuation earlier, like by means of the First Dwelling Tremendous Saver Scheme, however in any other case it’s a part of your retirement nest egg.
- The corporate who facilitates the wage sacrifice association will normally cost you an administration payment. It will sometimes be paid out of your pre-tax {dollars}. Further expenses might also apply to advantages like a novated lease.
The effectiveness of wage sacrificing will rely in your particular person monetary state of affairs, so you could need to think about getting monetary recommendation and/or tax recommendation out of your accountant earlier than requesting or agreeing to a wage sacrifice association.
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Price, efficiency and asset allocation data proven within the desk above have been decided in line with the funding profile within the Canstar Superannuation Star Rankings methodology that matches the age group you specified above.
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This text was reviewed by our Deputy Editor Sean Callery and Finance & Way of life Editor Shay Waraker earlier than it was revealed, as a part of our fact-checking course of.
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