With the AFL’s first bounce tonight and NRL kicking off last weekend, one thing every Australian worker has in common with their favourite team is a salary cap.
And, as with footy, the better you use that cap, the more successful you tend to be in the long run.
That’s the advice from Melbourne Football Club (the reigning AFL premiers), fan and Superannuation expert, Tony Negline, from Chartered Accountants Australia New Zealand.
“The footy being back is a great reminder for Aussies to salary sacrifice into super well before tax time and set themselves up for future success. But, there are some tips and traps that new players need to be aware of.”
“Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer paying more of your pre-tax wages into your super fund instead of to you as take-home pay. This reduces the amount of tax payable on the total income you earn, up to a certain amount,” Mr Negline said.
“That’s because the salary sacrifices you make to your super account are not taxed in your personal name, but in your super fund at 15%.”
“There is a catch though,” Mr Negline said.
“Salary sacrifice contributions are known as ‘concessional contributions’. There is an annual cap on concessional super contributions (where a lower tax rate applies), which this financial year is $27,500.
“The cap is calculated considering both your employer and your personal super contributions claimed as a tax deduction.”
The ‘Carry Forward’
Since 1 July 2018, individuals have been able to make ‘carry-forward’ concessional super contributions exceeding the cap if they have a total superannuation balance less than $500,000.
Mr Negline said this is a real untapped opportunity for many Aussies, with many unaware of the opportunity to access unused concessional contributions.
“The way this works is to look at whether you have any unused concessional contribution caps from a prior financial year. But amounts carried forward that have not been used after five years expire, so it is ‘use it or lose it’.
“Subject to the cap and any unused carry-forward concessional contribution entitlement, the other way of boosting your super balance is to make a personal tax-deductible contribution from your after-tax wages or other spare cash you might have,” Mr Negline said.
The Final Whistle
“To make the most of these super and tax advantages – it’s important not to leave it too late,” Mr Negline said.
“The ATO guidance is clear, you can’t go back in time and sacrifice wages you’ve already derived, but the good news is you still have a bit of time to play with before 30 June 2022.
“And, remember to chat with your trusted accountant as everyone’s situation is different. Consider the impact of any salary sacrifice arrangement on your take home pay and personal budget, as well as your overall tax position.”