Sort out your super this financial year

Salary sacrifice

Salary sacrificing into super offers an easy way to save on tax while boosting your super balance.

What is salary sacrifice?

Simply put, salary sacrificing involves nominating a certain amount of your future pre-tax salary to go straight into your super. Your reduced salary (that is, your salary minus the amount you salary sacrifice to super) becomes your assessable income for personal income tax purposes. However, since 1 July 2009, salary sacrifice may be used to work out entitlements for certain tax offset and government benefits.

What you need to consider

There are a number of factors you need to consider before you salary sacrifice. Firstly, speak to your employer and find out if they allow salary sacrifice arrangements (and if there are any effects on other employment or superannuation benefits or your Super Guarantee contributions). If they do, then you’ll need to consider:

1. How much you want to contribute from your salary. Usually you can nominate the amount as either a percentage or fixed dollar amount.
2. Whether you want to sacrifice any of your future bonus (if you receive one) to super.
3. Whether or not you would like to salary sacrifice any leave entitlements. Generally speaking, you can only salary sacrifice leave payments that you have not yet accrued or become entitled to.

As salary sacrifice contributions are taken to be concessional contributions, you also need to consider the concessional contributions cap. For the 2009/10 financial year, the cap on concessional contributions is $25,000 for those aged under 50. The transitional cap for those aged 50 and over is $50,000.

For more information about salary sacrifice, visit www.amp.com.au/salarysacrifice.

Government co-contributions

Make a difference to your super by taking advantage of government incentives.

Will you earn under $61,920 pa in 2009/2010?

If you answered yes to the above, and you make personal after-tax contributions to your super, then you may be eligible to receive ‘co-contributions’ from the government to help grow your super.

How does this work?

The government will contribute up to $1 for each $1 you contribute to your super (up to an annual maximum of $1,000). If you meet the eligibility criteria, all you have to do is lodge your tax return for 2009/2010 and the ATO will arrange payment of your co-contribution.

Am I eligible for co-contributions and if so, how much can I receive?

To find out if you are eligible for co-contributions and how much you can receive, visit www.amp.com.au/cocontribution.

Spouse contributions

Build your super and save for retirement with your spouse using this tax-effective strategy.

What are spouse contributions?

Basically, a spouse super contribution is where you invest money into your spouse’s superannuation account, rather than your own.

When would I use spouse contributions as a super strategy?

This strategy is helpful if your partner has a low income or is not working. If your partner’s income, plus reportable employer superannuation contributions (generally speaking any salary sacrifice amounts) and reportable fringe benefits is $13,800 or less, you could receive up to a $540 tax offset on the first $3000 you contribute to their super account (from your after-tax income).

For more information on spouse contributions, including your eligibility for the tax offset and to see who qualifies as your spouse, visit www.amp.com.au/spouse.

‘Bring forward’ your super contributions

By boosting your super now, you could have extra tax-free money when you retire.

What is the ‘bring-forward’ option?

No tax is paid on non-concessional (after-tax) contributions in a financial year when the amount of these contributions are within that year (1 July through to 30 June) and fall below the non-concessional contributions cap. The non-concessional for 2009/2010 is $150,000 pa. However, under the Government’s ‘bring forward’ rules, people aged under 65 can bring forward two years worth of non-concessional contributions; up to $450,000.

Earnings on these contributions will be taxed at the favourable rate for superannuation funds of up to 15%. Further, when taken as a super benefit, they are tax-free if you retire after age 60.

How does this grow my super?

The size of your final super benefit will depend on the performance of the super fund, but also on how much you invest into super. This means you have the opportunity to build your wealth by investing into your super and benefiting from a favourable tax environment.

What happens when I retire?

When you retire, you have the choice of taking your super payout as an income stream, or lump sum. Either way, if you take your super benefit on or after age 60, the money you receive will be completely tax-free!

If you have any questions or would like more information on these strategies please contact us. For more information visit www.amp.com.au/bringforward.

What you need to know

Information current as of February 2010. This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of either the premium you pay or the value of your investment. You can ask us for further details about this.