Additional tax guidelines
The following issues in relation to salary sacrificing of superannuation contributions have been highlighted for information. This information may be considered when deciding whether or not to salary sacrifice contributions into Superannuation.
This information is not intended to be in lieu of seeking professional financial advice.
If an employee only claims the tax free threshold on their Tax Declaration form, they should receive a tax saving under the Salary Sacrifice Arrangement. If an employee claims any other tax concessions on a fortnightly basis they will not be paying enough tax.
The tax saving occurs because employees are paying tax on the amount of salary that remains AFTER the Superannuation Contributions are deducted, instead of paying tax on the total salary.
Because BEFORE tax contributions are subject to 15% contributions tax (EmployER contributions are also subject to 15% contributions tax) the amount an employee contributes is grossed up as follows:
UniSuper members
The University deducts 8.25% of the employee's salary BEFORE tax and pays it into superannuation, instead of 7% of the total salary AFTER tax.
QSuper members (existing employees only)
The University deducts 5.88% of the employee's total salary BEFORE tax and pays it into superannuation, instead of 5% of total salary AFTER tax.
(After tax contributions are so called because an employee also pays tax on their Total Salary). The saving is equal to the tax saving less the 15% grossing up of the Superannuation contributions.
Taxation
The Superannuation contributions an employee pays under the Salary Sacrificing Arrangement are treated in the same way as Employer contributions. They are subject to the 15% contributions tax levied on all before tax contributions. The tax is deducted by the Superannuation funds and remitted to the Australian Taxation Office.
Employees' BEFORE tax Superannuation contributions may also be subject to further taxation upon retirement, eg. if an employee takes their benefit in the form of a lump sum on retirement, the first $135,590 (2006/2007 financial year) of the taxable portion of the total benefits paid is tax free. The contributions employees make are included in the taxable component, whereas the contributions made AFTER tax are not subject to further taxation. (Any earnings on AFTER tax contributions are subject to tax).
Undeducted contributions
When super benefits are paid out, superannuation contributions made AFTER tax and throughout a person's working life are treated differently from those contributions made BEFORE tax. These contributions are called Undeducted Contributions, and are not subject to any further taxation. If the benefit is taken as a Lump Sum, the Undeducted Contributions are shown on the Eligible Termination Payment (ETP) as a separate amount. This amount is recorded by the Super funds, being updated until the time the benefits are paid out and then not taxed.
If the benefit is taken as a pension stream, the Undeducted contributions are used, together with a Life Expectancy Factor in determining the tax free portion of the pension.
If the person has made their contributions to superannuation Before tax there will be no Undeducted Contributions or that amount will not be as much if contributions were paid Before tax for a portion of the person's working life.
The government co-contribution
Employer contributions, salary sacrifice contributions and contributions a member has made on behalf of their spouse, who have claimed a tax deduction for their contributions do not qualify for the government co-contribution.
Disclaimer
Any employee considering whether or not to pay superannuation contributions BEFORE Tax must first seek advice from a licensed Financial Planner or other independent advisor in relation to this matter.
For any other general questions relating to salary sacrificing or superannuation at The University of Southern Queensland please contact Linda Lowien.