The beginning of the financial year is an ideal time to review salary sacrifice arrangements. This is especially important for individuals likely to be close to their contribution caps, or wishing to maximise their concessional contributions to superannuation. As a reminder, the concessional contributions cap is $25,000 (or $50,000 for individuals who are aged 50 or over on the last day of the financial year).
Exceeding Contribution Limits can lead to additional tax which effectively taxes your excess contributions at 46% or possibly higher depending on other contributions.
When reviewing or creating a new salary sacrifice agreement, consideration should be given to:
- the terms of the agreement specifying the amount(s) and timing of salary sacrifice contributions, e.g. whether additional items will be sacrificed, such as end of year bonuses.
- the number of pay cycles in the coming financial year. In 2011/12, for employees who are paid on a Friday, there will be 53 weekly pay cycles in the year or there may be 27 pay cycles in the year if paid fortnightly. You may have an extra pay cycle during the financial year and possibly additional superannuation guarantee (SG) and/or salary sacrifice contributions, depending on when your employer makes these contributions and your level of income.
- factoring in concessional contributions from all sources that will be paid in coming financial year, even if they relate to the previous financial year. This includes items such as SG and insurance premiums paid by your employer or you for cover effected through superannuation. For details about contributions that count against the concessional cap contact your Financial Adviser.
- capturing SG and salary sacrifice contributions made in situations where you changes job, and
- factoring in a reasonable buffer for pay rises or bonuses received that may occur during the financial year or unexpected employer contributions.
- understanding your employer's policy regarding SG contributions and whether your employer pays 9% on employee earnings in excess of the maximum quarterly earnings base of $43,820 (2011/12 year).
While the above planning may help avoid an excess contributions problem, it would be wise to review the actual concessional contributions made before the end of the financial year. This way you can ensure any changes in your employment, income or superannuation contributions since 1 July don't derail your plans.
Sound confusing? Contact us for more information about salary sacrifice and contribution caps or to arrange a, no-obligation first consultation, please contact:
GEM Capital
Phone: 08 8273 3222
http://staging.gemcapital.com.au/
Note: Advice contained in this flyer is general in nature and does not consider your particular situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this information have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at July 2011.