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Turning your tax liability into extra savings

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Because of the way tax is applied to superannuation, savvy employees can turn what would have been a tax liability into extra savings through salary sacrifice.

Many Aussie workers can, by agreement with their employer, have money paid into their super fund from their salary before income tax is taken out.

These contributions can reduce their tax bill as well as boosting their super: they will be taxed at 15% rather than their marginal rate.

For example, Michael has an annual salary of $90,000 (excluding the super guarantee).

tax liability

If he makes before-tax contributions to his super fund of $10,000, he will boost his retirement savings and save $2400 in tax (based on 2014-15 rates and Medicare levy of 2%).

Without salary sacrifice Michael would have a higher take-home pay of $66,953, paying tax of $23,047.

But with his salary sacrifice into the fund of his choice, there is less tax ($60,853, tax $19,147) and more super ($8500).

Of course, he would need to ensure his total super contributions (including the SG payments) stay under the cap.

There are further tax savings for Michael because his earnings from investments via the super fund are taxed at only 15% rather than 39% (including 2% Medicare).

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