Salary sacrifice20104184237

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					Salary sacrifice

What is salary sacrifice?                                            Tax efficiencies now
Salary sacrifice is an arrangement between an employer and           By salary sacrificing into super, you may be able to benefit
an employee whereby the employee with the prior approval of         from an immediate tax saving depending on your marginal
the employer sacrifices some of their future salary in exchange      tax rate. By salary sacrificing into super, your contributions are
for an equal amount of super contribution. This is all done on      taxed at 15%, as opposed to your marginal rate of tax (which
a “pre-tax” basis.                                                  would apply if you took the salary as income).

The types of investments that you can invest in via super are       Your contribution (less contributions tax) is then invested
generally no different to the investments available outside of      in super and compounds over time, meaning that you are
super; however there are certain restrictions placed on super       likely to end up with a higher end benefit than if you hadn’t
fund investments. Super is merely a tax and trust structure         contributed. Of course you need to take into consideration if
that surrounds your investment and affects the accessibility of     you will need to pay more tax if and when you are eligible to
your money and the tax that is paid on it.                          take some money out of super.

Why salary sacrifice?                                                Because of this, for individuals on marginal tax rates above
                                                                    15%, salary sacrifice may result in significant up front tax
There are two main reasons that might prompt you to                 savings.
consider thinking about diverting some of your pre-tax salary
directly into your super fund.                                      Tax efficiencies while your money is
Firstly, to help grow your retirement savings. Super is             in super
the cornerstone of retirement savings for the majority of           Unlike investments held outside of super, you do not have
Australians. Most people recognise that with an aging               to declare the earnings of your super fund in your personal
population there is increasing pressure on us to fund for our       income tax return each year.
own retirement. In addition, the power of compound interest
can mean that over time, regular savings into super could           Your super fund reports investment earnings on your super
have a major impact on your retirement benefit.                      account and is taxed internally at a maximum of 15% on
                                                                    income, and effectively 10% on capital gains (as only two-
Secondly, by diverting income from your pre-tax salary into         thirds of capital gains are taxed if the investment is held in
super, you could reduce the amount of tax that you pay,             the fund for more than 12 months). This generally compares
and at the same time you are investing in a tax-effective           favourably to the tax that would apply to your investments
environment. However, you need to keep in mind that any             outside of super.
amounts which you salary sacrifice into super are generally not
accessible to you until you retire – they are essentially “locked
away” until retirement.

It is strongly recommended that you seek advice from a
licensed, or appropriately authorised, financial adviser before
making any decision to salary sacrifice.
                                                                                                                         Salary sacrifice

Tax efficiencies at retirement                                             A licensed financial adviser can help you
Current rules                                                             There are a lot of things to consider when making a decision
What does it mean when you want to access your super                      about salary sacrificing into super.
savings upon retirement?
                                                                          It’s important to understand that in some cases, it may not be
There are three ways in which you can access your super                   the most appropriate strategy for you – remember, all money
benefits once they become payable:                                         invested in super is effectively ‘locked away’ (or preserved),
n take a lump sum,                                                        generally until retirement age.
n take a pension, or
n a combination of both.                                                  In addition, the Government has put some limitations on how
                                                                          much you can contribute to super and under current rules
Under current rules both lump sums and pension income are                 these limits depend on your age. You can see these limits by
taxable, but in the 2006/2007 Federal Budget the Government               clicking on ‘Super’ under ‘Library’ of the Mercer Super Trust
proposed that all super benefits paid from a taxed super fund              website.
to those over age 60 will be tax free, making super even more
tax-effective in retirement. These new rules are expected to              A financial adviser will take into account your short, medium
take effect from 1 July 2007. For those under age 60 the                  and long term financial goals and your lifestyle needs before
existing rules are expected to continue to apply.                         recommending appropriate strategies for you. Super may be
                                                                          only one part of these strategies.
If you are over 55 years of age and can access your super,
then under the current rules there is a tax-free threshold                For more information, contact Mercer Wealth Solutions on
that applies, and this tax free threshold is indexed each year.           1800 633 403.
It is strongly suggested that you seek financial advice prior
to taking any lump sum, particularly if you are subject to                Let’s recap
Reasonable Benefit Limits – although as part of the Budget
proposals the Government has announced that Reasonable                    So, to summarise:
Benefit Limits will be abolished from 1 July 2007.                         Firstly, salary sacrifice is a term used for saving more into
For more detail about tax free thresholds or Reasonable                   super by contributing from your pre-tax salary.
Benefit Limits, click on ‘Super’ under ‘Library’ of the Mercer             Secondly, super continues to be a tax-effective way for most
Super Trust website (
                                                                          people to save for retirement and can provide tax-effective
When it comes to drawing income by way of a pension                       income in retirement.
in retirement, super can again be seen as a tax-effective
                                                                          Finally, salary sacrifice isn’t suitable for everyone and you
                                                                          should seek professional financial planning and tax advice
Under current rules part of the income you receive may not be             before making any changes to your salary package.
taxable. This is based on amounts in your super fund that you
may have contributed from after-tax dollars.

In addition, you may receive a tax-offset of 15% of the taxable
income that you receive. This means that you can generate a
substantial income each year before you have to pay any tax.

Better still, no tax is paid by pension funds on their investment

     To speak directly with a Mercer                                              If you are a Mercer Super Trust
   financial adviser call 1800 633 403.                                               member call 1800 682 525.                                       

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                                                The information in this fact sheet has been prepared by Mercer Human Resource Consulting
                                                Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into

                                                account your personal objectives, financial situation or needs. Therefore, you should not act
                                                on this information if you have not considered the appropriateness of this information to your
                                                personal objectives, financial situation and needs. You should consult a licensed or appropriately
                                                authorised financial planner before making any investment decision.

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