Friday 26 February 2021

I'll be increasing my Salary Sacrifice amounts from 1 July

I currently salary sacrifice $530 into superannuation in each bi-monthly pay ($12,720 pa) in addition to the SGL contribution of  $413.78 each pay ($9,930.72). That adds up to $22,650.72 pa of concessional contributions each year, well below the current $25,000 pa cap. However, there are also some additional employer contributions that get paid into my company-nominated superannuation plan as my employer refunds part of the standard admin fee and also refund the premiums paid out of superannuation for the basic amount of group life insurance. Those amounts vary a bit from month to month, and the timing of contributions actually being credited to the superannuation fund also move around a bit. As both of these additional contributions count towards the concessionally taxed contribution total, I have to be a little bit conservative with how much I contribute via salary sacrifice and then calculate the actual total of concessional contributions in the last few days of June so I can make a personal contribution into superannuation that will bring me up to the concessional contributions cap, and then claim a tax deduction for that personal contribution when I do my annual tax return. Last FY I didn't end up making any extra contribution in June as it turned out that due to a late monthly payment that had been deposited on 1 July 2019 I seem to have actually exceeded the concessional contribution cap for last financial year! (I won't know until my tax return for 2020 has been processed and the ATO decides if there was any 'excess contribution' amount. If there is any 'excess contribution' it will be added to my assessable income for the year and be taxed at my marginal tax rate (minus 15% tax rebate for the amount of tax already paid on concessional contributions by the super fund). The excess contributions will be counted towards the non-concessional contributions for that FY).

The concessional contributions cap will be increasing from $25,000 to $27,500 from 1 July 2021 due to indexation of various superannuation caps in line with increases in wages. So I will notify HR in late June to increase my bi-monthly salary sacrifice amount by $70 per pay period (to $600 of 'salary sacrifice). Hopefully I will receive a small annual pay rise this year (I'll find out the result of the company's annual salary review next month) that will cover this additional deduction, so my take-home pay should remain fairly constant. The SGL will also be increasing from 9.5% to 10% from 1 July, which will add another $522 of annual concessional contributions each year, so I might be getting close to the increased cap and not need to make much of a 'top up' contribution in June 2022 to max out the increased concessional contributions cap.

An added complication is that the admin fee charged by the superannuation fund has recently been cut, so to keep the total admin fee employees actually pay the same, the employer's refund of part of the admin fee will be reduced (so that amount of employer additional contribution into superannuation will be reduced slightly).

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mOOm said...

I didn't realise you could claim tax deductions for contributions if most of your income came from employment. Though I vaguely remember that was something that was changed at some stage. Maybe I'll stop my wife's salary sacrifice deductions and pay the money into our new SMSF when it is set up. said...

Yes, this changed a few budgets ago. To quote something from aware super:

"Among the many changes to super introduced on 1 July 2017 was the removal of the “10% rule”. What is the 10% rule? Under this rule, you could only claim a tax deduction for personal contributions if you earned less than 10% of your income from eligible employment. This rule excluded most employees from claiming a tax deduction for personal contributions to super.

But this changed on 1 July. From this date, you can make personal contributions from your after-tax income and claim a deduction for them regardless of how much you earn from salary and wages."

The official ATO info is here:

Basically the only complication is to fill in the appropriate notification form to send your super fund to let them know that you are claiming a tax deduction for a personal contribution.

I still have a salary sacrifice setup so it automatically comes out of my pay, and I just make an extra personal contribution at the end of the FY if I need to 'top up' to the concessional contribution cap. If I stopped doing salary sacrifice I'd still have the issue of irregular/odd amounts of SGL and 'employer additional' contributions (for refunding part of the admin fee and life insurance premiums) making it hard to know how much to contribute to just hit the $25K limit for the FY, so I just use salary sacrifice for the bulk of my extra contibutions (above SGL).

If I cancelled my salary sacrifice completely I'd have to make sure I don't forget to make the large contribution in June (and it has to arrive in the super fund's bank account by 30 June). If it slipped my mind I might miss out on the tax saving entirely.

Then again, if her super balance is under $500K the carry forward rule can be used if less than the concessional contributions cap has been used...

It's probably this sort of finnicky detail that keeps financial advisors in a job ;)