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Salary sacrifice is an agreement between an employee and an
employer where the employee sacrifices part of their pre-tax salary in return
for other benefits, including superannuation contributions. The employee directs the employer to allocate portion of the total remuneration package to salary or wages and the remainder to Superannuation and other benefits.
It is an extremely popular method of increasing the amount a taxpayer has
in superannuation, and it is also advantageous from a financial planning perspective.
With the superannuation tax concession, 85% (or lesser if the superannuation
surcharge applies) of the employee’s pre-tax salary is invested compared
to 51.5% if paying tax at the highest personal tax rate and investing the
after-tax income.
An effective salary sacrifice arrangement is one in which the employer and
employee agree upon the employee’s total remuneration package before
any services are provided.
Employee at the time of deciding should give consideration to the following
issues before deciding the amount to be allocated to Superannuation from total
remuneration package.
- Personal Tax Rates
- Maximum deductible Contribution limits
- Superannuation Surcharge
| Personal Resident Tax Rates 2005
- 2006 |
| Taxable Income |
Marginal Rate |
Tax Payable |
| 0 - $6,000 |
Nil |
Nil |
| $6,001 - $21,600 |
17% |
17% of the amount over $6,000 |
| $21,601- $63,000
|
30% |
$2,340 + 30% of the amount over $21,600 |
| $63,001 -
$95,000 |
42% |
$14,760
+ 42% of the amount over $63,000 |
| Over $95,001 |
47% |
$28,200
+ 47% of the amount over $95,000 |
1.5% of taxable income
An additional 1% Medicare surcharge applies for taxpayers and families without
adequate private hospital cover if the taxable income plus reportable fringe
benefits exceeds:
Single Taxpayer $50,000 Family $100,000
Maximum deductible Contribution to a Super fund is based on the age of the
employee.
The age-based limits for the 2003/04, 2004/5 and 2005/06 years are as follows:
| Age of Employee |
2003/04 |
2004/05 |
2005/06 |
| Under 35 |
$ 13,233 |
$ 13,934 |
$ 14,603 |
| Between 35 to 49 |
$ 36,754 |
$ 38,702 |
$ 40,560 |
| Over 50 |
$ 91,149 |
$ 95,980 |
$ 100,587 |
Surcharge is additional tax, which the Superannuation Funds has to pay to tax
office, provided Adjustable taxable income is over the lower limit in the following
table.
| Income Year |
Income (ATI) Lower
Limit |
Income (ATI) Upper
Limit |
Divisor |
Indexation Factor |
| 2005-06 |
$ 104,496 |
$126,887 |
2239.10 |
1.048 |
| 2004-05 |
$99,710 |
$121,075 |
1709.20 |
1.053 |
| 2003-04 |
$94,691 |
$114,981 |
1399.31 |
1.046 |
| 2002/2003 |
$90,527 |
$109,924 |
$1,295 |
1.062 |
| 2001/2002 |
$85,242 |
$103,507 |
$1,219 |
1.046 |
| 2000/2001 |
$81,493 |
$98,955 |
$1,165 |
1.042 |
| 1999/2000 |
$78,208 |
$94,966 |
$1,118 |
1.031 |
| 1998/1999 |
$75,856 |
$92,111 |
$1,084 |
1.036 |
| 1997/1998 |
$73,220 |
$88,910 |
$1,046 |
1.046 |
| 1996/1997 |
$70,000 |
$85,000 |
$1,000 |
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To calculate the surcharge tax in any financial year apply the numbers in
the table above to the table below:
Income (ATI)
|
Surcharge Rate (%)
2004/2005 |
| Less than Lower Limit |
0% |
| Between the Lower Limit and the Upper Limit |
(ATI- Lower Limit)/Divisor |
| Above the Upper Limit |
13.5% |
Please note the government has introduced legislation to reduce the maximum
surcharge rate to 12.5% in 2004/05, 10% in 2005/06 and beyond..
Please note that Super Surcharge is abolished from 1st July 2005
Adjusted Taxable Income (ATI) includes
ü
Taxable income,
ü
Reportable fringe benefits,
ü
Employer contributions,
ü
Deductible member contributions,
ü
Unfunded employer ETPs.
ATI does not include
ü
ETPs cashed out of a super fund,
ü
Long service leave & annual leave
ü
Amounts paid due to bone fide redundancy,
ü
Early retirement scheme or invalidity payment.
For Example if the Total Remuneration package of the employee is $100,000,
there are several ways he can be paid by the employer. Each pay out scheme would
depend on the personal circumstance of the employee. We can assist the employee
in deciding which scheme would help him to maximise benefits and legally reduce
his tax.
Last updated on 18th July 2005
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