Why you should make personal contributions to super instead of salary sacrificing

​Most people understand that if you want to make before-tax contributions to your super, you can salary sacrifice via payroll, producing a tax saving.

​This money gets taxed on the way into your super fund at 15% rather than your income tax rate (of possibly 34.5%).

These are known as concessional contribution’s “CC”, made up of your employer contributions and salary sacrifice, and capped at $25,000 p.a.

If you were an individual earning $100,000 p.a.:

• Your employer will be adding minimum $9,500 (9.5% SG) into your super.
• Leaving you with $15,500 extra to add to your concessional contributions.

To take advantage of this tax saving, many new clients try to maximise their concessional contributions via the salary sacrifice method.

However, their calculations can be off because of pay rises throughout the year and/or issues arising from the employer, such as the timing of their superannuation payments.

Employers are only required by law to pay into your super quarterly and a large portion of funds may not enter your super until the next financial year.

Therefore, the issue arises when the amount the client has calculated for is not the same as what has gone in their super that particular financial year.

This meant clients were missing the opportunity to receive their full tax savings in one financial year or going over the CC cap.

Luckily, there is a better way.

To take advantage of these tax savings, you can now make after-tax personal contributions into your super fund and claim a deduction on the exact amount you are eligible for at the End of Financial Year “EOFY”.

You choose your own schedule at which you BPay directly into super or you can contribute the remainder of your CC cap as a lump sum just before EOFY.

Advantages of this method include:

• You won’t go over the limit
• You won’t fall under the limit
• It gives you the power to manage your own cashflow, especially if something unexpected comes up.

It must be noted that your cashflow during the year will be less than the salary sacrifice method, as you will only receive your tax deduction after EOFY.

However, this leads onto another added advantage of forced savings! The money you receive back from your tax refund can be used to fund something you’ll truly find enjoyment out of e.g. travel.

​Written by Ali Hogue.