Tips & Strategies

Choose a lower tax rate for your income

If you earn more than $35,000 you’ll be paying tax at a rate of 31.5% or more on every dollar you earn over that amount.

R Leong Co - Choose a lower tax rate

If you can spare the cash, doing a salary sacrifice into your super is one of the most simple ways to reduce the tax you pay.

By salary sacrificing this way, you effectively swap your own marginal tax rate of 31.5%, 39.5%, or even 46.5% (depending on your income level) for a tax rate of just 15% (which is what your super fund pays when it receives the money).

Be careful that you can only sacrifice salary and other entitlements that have yet to be earned. For instance, you cannot choose to sacrifice a bonus after it has been earned, but can agree with your employer to sacrifice a future bonus.

Here’s an advanced twist to the strategy:

If you’re 55 or over and still earning, this gets a whole lot more interesting!  At this age you can start drawing a ‘pension’ from your superannuation savings. The advantages become even greater if you’re 60 or over, as your pension is paid completely tax-free to you.

Now, even if you are not ready to retire, and don’t need the pension, this’s still something to behold, as this will switch your super into tax-free mode (i.e. your super will no longer pay tax on its earnings!).

Now with an additional income stream, you can salary sacrifice any surplus income into super. Now together with all of the advantages described above, you also will have turned your super to a tax-free vehicle!

Warning:  Always seek advice before attempting any complex strategies such as this.

Apart from super, you can also sacrifice your salary for other benefits like getting a company car (good for high-income earners who use their work vehicles frequently), and laptop computer, and software that’s primarily used for your work.

About the Author

Roland has more than two decades experience as a professional accountant, business and financial adviser, including Australian Taxation Office experience. He has also presented in a number seminars, appeared on radio, and is a published commentator for a number of industry publications.

Roland holds a Bachelor of Economics (Syd), and also holds the designations of Chartered Accountant, CPA, and Financial Planning Specialist.

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