Whether you’re saving for retirement, your first house or buying a new car, salary sacrificing can help.

We all want to make the most of our income and prepare for the future, right?

It turns out whether you’re saving for retirement, your first house or buying a new car, salary sacrificing can help.

What is salary sacrificing and how does it work?

Salary sacrificing is basically a way to minimise your tax bill. It involves using your pre-tax salary to buy goods or services that you’d normally buy with your after-tax pay.

Because in the eyes of the tax department you’re earning less when you’re salary sacrificing, they tax you less.

The rules are complicated but there are two big things to keep in mind when starting out.

  1. 1. What you can salary sacrifice depends on your employer, but it’s commonly used for superannuation, electronic devices (like laptops and phones) and cars. Whether you can take advantage of it at all depends on your workplace. Many small businesses don’t offer salary sacrificing services, says Jarrod Rogers, a certified public accountant based in Melbourne.
  2. 2. Salary sacrificing arrangements must be made in advance. You can’t package money you’ve already been paid. There is an exception for superannuation, which we’ll get to shortly.

See, that wasn’t too hard! Now we can get to the money-saving part.

If you’re looking to buy your first home or want to boost your retirement savings, salary sacrificing into super can be a great option, says Mr Rogers.

What’s attractive about this strategy is that superannuation contributions are taxed at 15 per cent, which is much less than the 32.5 per cent paid by someone on earning an average wage in Australia.

It’s especially good for first home buyers, who can withdraw up to $30,000 involuntary super contributions, as well as the amount’s earnings, to put towards their first home.

It works like this. Imagine you earn $80,000 and decide to salary sacrifice $10,000 to super. You would pay $1,500 in tax on that $10,000 in super compared to $3,450 you would have to pay otherwise — a saving of $1,950.

The caveat: unless you’re using the money towards your first house, you won’t be able to access the money until you’re at least 60 — possibly longer if the rules are changed.

A smiling woman hugs a man while holding a keys on a keyring with a wooden house.
IMAGESalary sacrificing to superannuation can help you save a deposit for your first home.(Unsplash: Rawpixel)

Super is now a bit more flexible than it has been in the past. You don’t even need to tell your employer: you can simply make a personal contribution (which is as easy as paying a bill) and claim the deduction at tax time.

If you’re doing that, it’s important to notify your super fund that you’re claiming the deduction, Mr Rogers says.

If it’s more convenient, you could also ask your payroll department to put a little extra to superannuation each time you’re paid.

There are a couple of important things to keep in mind if you’re thinking about salary sacrificing into super:

  • The limit for super contributions with a tax break is $25,000 per year. Keep in mind this is total: it includes any contributions you already get from your employer.
  • The First Home Saver Super Scheme has strict rules about how much money can be withdrawn and what the money can be used for. If you don’t end up using the money for a house, you won’t be able to withdraw the money until you can access your super. It also takes some time to withdraw the money, which has caught some people out.

The pros and cons of salary packaging a car

Cars and running costs are another popular way to make use of salary sacrificing.

The most common arrangement is what’s called a novated lease. It works like this: you lease a car, and your employer takes the repayments and running costs out of your pre-tax income.

If you’re planning on buying a new car using finance, novated leasing makes good sense, especially if you’re on the top tax bracket, says Mr Rogers.

But many people make the mistake of focusing on the tax deduction rather than the total cost. Remember, it doesn’t make sense to spend a $30,000 on a car you wouldn’t normally buy just to save $10,000 or so in tax, Mr Rogers says.

“If you pay for an expensive car through a pre-tax novated lease, you’re still buying an expensive car,” he adds.

Another thing to keep in mind is that you have to pay a lump sum to keep the car at the end of a novated lease. (The flip side is that you pay less upfront.) It’s something that trips a lot of people up, says financial advisor Amir Salehi.

“Most people forget to budget … [which means] they have to either sell the car because they can’t afford to pay the lump sum or get into a contract to lease another car even if it’s not in their best interest,” he says.

An illustration shows a house and money being watered in a depiction of salary sacrificing.
IMAGEWhether you’re buying your first house, saving for retirement or buying a new car, salary sacrificing can come in handy.(ABC Life: Luke Tribe)

You can salary package laptops and phones — but be careful to follow the rules

Depending on your job and your employer, you might also be able to pay for a laptop, phone or other electronic devices out of your pre-tax income.

There are a few rules to keep in mind:

  • The device needs to be portable. You can’t package a desktop computer, but laptops and phones are fine, Mr Rogers says.
  • The device needs to be used mostly for business purposes (at least 51 per cent of the time).
  • Not all employers will allow you to package a phone or laptop.

If you’re unsure if you’re eligible, the first port of call should be your employer, says Mr Salehi.

If you work in public health or for a charity, there’s extra perks

Workers in public health, not-for-profits or charitable organisations often have great salary packaging benefits.

In many cases, employees can even package things like your rent, mortgage payments and credit card expenses using their pre-tax income.

“It is another way the Government tries to make sure we have good people and talent working in the public sector,” Mr Salehi says.

If you work in one of these industries, make the effort to fill out the paperwork and claim the maximum amount (which varies depending on the job).

Salary sacrificing is a useful tool that can help you reach your financial goals. But don’t let the tax breaks trick you into buying something you don’t need: you’ll be worse off no matter much tax you’re saving.

This article contains general information only. It should not be relied on as advice in relation to your particular circumstances and issues, for which you should obtain specific, independent professional advice.

Workers in public health, not-for-profits or charitable organisations often have great salary packaging benefits.

In many cases, employees can even package things like your rent, mortgage payments and credit card expenses using their pre-tax income.
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Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. LJ Gilland Real Estate Pty Ltd LREA推荐书LJ Gilland房地产 http://ljgrealestate.com.au/testimonials/ http://ljgrealestate.com.au/competitive-commission/ http://ljgrealestate.com.au/property-management/ http://www.facebook.com/ljgrealestate L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
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