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Salary Sacrifice


How Tax effective is Super?


Case study


Let’s say John and Jane both decide they each want to put away $5,000 a year towards their retirement. They look at how much they could save by ‘sacrificing’ some of their salary into their super account. They also look and compare how much they could save by investing outside super. For the purposes of this example, the assumptions are the same for both super and non-super, using an investment return of 7.7%

                  






























This table is for illustrative purposes only and does not represent actual returns. A change in one or more of the variables and assumptions will produce different results. This is general information only and does not take into account your individual objectives, financial situation or needs.

This table illustrates the position after 20 years of taking $5,000 pa of before-tax salary and either salary sacrificing it into super or taking it as cash salary and investing outside of super. It assumes investment earnings of 7.7% pa, after fees and before tax. Super investment earnings are taxed at 15%. Non-super investment earnings are taxed at the investor’s marginal rate. All figures are in today's dollars, adjusted for inflation of 3.0% pa.


Helpful tip

If your salary puts you into the next tax bracket by just a few thousand dollars, your sacrificed contributions could reduce your taxable income and bring it down into a lower income tax bracket, further reducing your tax.


Inside Super

15% Tax

John Outside super 31.5% taxpayer

Jane Outside super 39.5% taxpayer

Salary sacrificed

$5000

$5,000

$5,000

After tax

$4250

$3,425

$3,025

Plus 7.7% return (year 1)

$327

$264

$233

Minus tax on performance returns (year 1)

$49

$83

$92

Financial position
after year 1

$4,528

$3,606

$3,166

Financial position
after year 20

$97,816

$67,959

$55,913

John

John earns $75,000 pa and pays tax at the marginal rate of 31.5%. After 20 years John’s savings could be:

Inside super $97,816
Outside super $67,959

That’s a difference of $29,857 if John salary sacrifices into super.

Jane

Jane earns $95,000 pa and pays tax at the marginal rate of 39.5%. After 20 years Jane’s savings could be:

Inside super $97,816
Outside super $55,913

That’s a difference of $41,903 if Jane salary sacrifices into super.


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