Your superannuation: is salary sacrificing still worth it?
First things first, what is salary sacrificing? Salary sacrificing for your superannuation is when you choose to forgo a portion of your wage so you can put more than the standard 9.5% into super.
For example, if your employer is filing 9.5% super for you at each pay, you are offering to reduce your wage before tax to add more into your super fund.
Previously beneficial, the changes to super legislation has meant that salary sacrificing super has become almost redundant now that you can do it yourself. The only real difference is the timing of when you get that little extra in your pocket from week-to-week or end of year, when your tax return is lodged.
Let’s explore some pros and cons of salary sacrificing in Australia, taken from the mind of Gerry Incollingo, MD of LCI Partners, a firm that specialises in accounting advisory, lending, wealth, property, insurance and legal.
Pros
- Beneficial by reducing your taxable income
- You will be paying less tax and increasing your retirement savings
- Soothes the stress of saving extra retirement money because no effort is required. Your investments happen automatically via your employer’s payroll system
Cons
- Low income earners: Not recommended for low-income earners as they are not paying a hefty amount of tax to begin with, such as those earning less than $37,000. Also, it may be difficult to manage and afford your expenses if a further percentage of your wage is taken away to contribute to your super
- Lending issues: Keep in mind if you are young or looking to invest in property, you want to show a healthy taxable income to get a loan, so I would avoid doing it until you have made the investments that you want to make
- No tax deduction: You cannot claim deductions and tax on sacrificed amounts.