Day: September 2, 2021

Whether you’re doing it because you want to travel, study or start a family, taking a career break can really affect your financial future. Thankfully, there are ways to help keep your superannuation in shape.

Different types of breaks from your career can have different impacts on your super savings. In some cases, such as taking annual and long-service leave (unless on termination), you’ll still get paid a regular income and receive superannuation contributionsⁱ, so there won’t be an impact at all.

If you’re a full-time employee, you can usually also take 10 days paid sick/carer’s leave annually and still be eligible for SG payments from your employerⁱⁱ(the number of days may be on a pro-rata basis for part-time employees). In other instances, you may forego superannuation if you take a career break, even if your employer commits to hiring you back at the end of your time away from work.

Tips for managing your super on a career break

When it comes to a career break, many people start planning their exit from the workplace well in advance. As part of this planning, you might want to consider contributing extra into your super as a way to minimise any impact on your retirement savings.

Concessional contributions

Concessional contributions are one way to do just this. There are two types of concessional contributions:

• • Salary sacrifice contributions are pre-tax contributions taken from your salary before your income tax is calculated. This is on top of what your employer might pay you under the Superannuation Guarantee.
  • Personal deductible contributions are voluntary contributions you can make using after-tax dollars (such as when you transfer funds from your bank account into your super), then claim a tax deduction for these payments.

Because concessional contributions are generally taxed at 15% which is usually lower than most people’s personal income tax rateⁱⁱⁱ, this can be a tax effective way to boost your super.

If you’re making contributions to your super, keep in mind that there are limits on the amount you can contribute each year.

The good news is that if you do take a career break, you may be able to make extra concessional contributions above the general cap using ‘carry forward’ arrangements. If you’re eligible, this allows you to access unused concessional cap amounts from previous years and add them to the current year instead – without paying additional tax^iv.

Spouse contributions

If your spouse is taking a career break, you may choose to help their super to grow by making a spouse super contribution. If your partner earns under $40,000, and you meet the other eligibility requirements, you can make after-tax contributions into their super, and may be eligible for a tax offset as well, depending on their income and your contributions^v. Keep in mind that there are limits for how much can be contributed.

Contribution splitting

In addition to contributing directly into your spouse’s superannuation account, you can opt to transfer some of the super you recently contributed to your own account, into theirs^vi. You can typically redirect up to 85% of your concessional super contributions from the previous financial year.

Government co-contributions

The government’s co-contribution scheme is designed to help boost savings in super funds of low and middle-income earners. If you’re in this category and make personal (after-tax) contributions to your fund, the government may also make an annual contribution of up to $500^vii. You don’t need to apply – it will happen automatically after you’ve lodged your tax return, provided you’ve given your tax file number to your super fund.

Other ways to keep on top of your super

In addition to making contributions into your super account, there are other ways you could nurture your nest egg while on a career break. You could look at consolidating your super – that is, bringing all your super together into one account. It could save you time and money on managing multiple fund fees. Although before you consolidate, consider whether you’ll pay any exit or withdrawal fees from your other super funds and check the features and benefits you have in your other super funds to make sure you’re not losing anything that’s important to you (like insurance). We can help you weigh up the pros and cons of consolidating.

Also, make it a priority to monitor how your super account and its investments are working for you. Your needs and attitudes toward investing will likely change at different stages of your life, and understanding how your money is growing accordingly will help you plan for your financial future.

What to keep in mind

• • If you exceed the super contribution limits, additional tax and penalties may apply.

• • The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.

• • The government sets general rules about when you can access your super, which means you typically won’t be able to access your super until you retire.
  • If you’re 65 or over and making contributions, you generally need to satisfy work test requirements and be under age 75.

i Australian Taxation Office: Checklist: Salary or wages and ordinary time earnings

ii Australian Government, Fair Work Ombudsman: Paid sick and carer’s leave

iii Australian Taxation Office: Tax on contributions

iv Australian Taxation Office: Carry-forward unused concessional contributions

v Australian Taxation Office: Super-related tax offsets

vi Australian Taxation Office: Contributions splitting

vii Australian Taxation Office: Super co-contribution

©AWM Services Pty Ltd. First published May 2021

Salary sacrificing into super involves reducing your take-home pay to put more money away for your retirement. See what you need to know.

Salary sacrificing into super is where you choose to have some of your before-tax income paid into your super account by your employer. This is on top of what your employer might pay you under the super guarantee, which is no less than 10% of your earnings, if you’re eligible.

Making salary sacrifice contributions does involve a reduction in your take-home pay, but it also means you could increase your retirement savings while also potentially reducing what you pay in tax. If you’re thinking about setting up a salary sacrifice arrangement, here are some things to consider.

What can I contribute?

You decide how much you want to contribute (as long as you don’t exceed super cap limits) and whether it’s a one-off payment, or something you can afford to do regularly.

How much I can contribute?

You can’t contribute more than $27,500 per year under the concessional super contributions cap or penalties will apply. It’s also important to note that contributions made into your super as part of a salary sacrifice arrangement are not the only contributions that count toward this cap.

Other contributions that count toward your concessional contributions cap typically include:

• • Compulsory contributions your employer pays under the super guarantee, including contributions from any other jobs you may have held in the same financial year.
  • Contributions you make using after-tax dollars which you choose to claim a tax deduction for.

What are the potential tax benefits?

If you choose to reduce your before-tax income by salary sacrificing into super, a potential benefit is you may be able to reduce what you pay in income tax for the financial year.

That’s because contributions made via a salary sacrifice arrangement are only taxed at 15% if you earn under $250,000 a year, or 30% if you earn $250,000 or more a year, with most people generally paying more tax on their income than they do on salary sacrifice contributions.

There could also be further tax benefits as investment earnings made inside the super environment also benefit from an equivalent tax saving, which could make a difference when you do eventually withdraw your super savings and retire.

How do I set up a salary sacrifice arrangement?

If salary sacrificing into super is right for you, here’s a quick checklist for how you could set this up.

Make sure your employer offers salary sacrifice

You will need to confirm with your payroll team at work that your employer offers this type of arrangement. If not, you may be able to achieve broadly the same benefits by claiming a tax deduction on contributions you may choose to make using after-tax dollars, but you’ll need to consider whether this is right for you.

Decide how much you want to salary sacrifice, how often and when

You might want to salary sacrifice on an ongoing basis, or as a one-off. Also, you can’t salary sacrifice income that you’ve already received, such as a bonus or leave entitlements, so you’ll need to act well before this money is paid into your regular bank account if you want to salary sacrifice it.

Notify your employer and get any agreement in writing

If you can salary sacrifice (and you know how much, how often and when you want to do it), contact your payroll team at work to find out what information they need. Ask them to confirm in writing when your contributions will start being paid, so you can check that the contributions are being received into your super account.

Make sure you don’t exceed the concessional contributions cap

If you do exceed the cap, additional tax and penalties may apply. Remember, the cap applies to all concessional contributions, whether they’re made into one or more super accounts.

It’s also worth noting that in addition to your annual cap, you may also be able to contribute unused cap amounts accrued since 1 July 2018, if you’re eligible. This broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year.

Everyone’s different, so if you’re thinking about setting up a salary sacrifice arrangement, consider your circumstances and whether it’s the right thing for you.

©AWM Services Pty Ltd. First published July 2021