Wife and I are thinking of paying extra into super this FY. Does the bank still see this as income? Also this money is tied up for next 20 years, is the difference between 15% tax and 40+% tax worth it. Surely I can do more with the money than putting it in Super! I'm not interested in SMSF as total super is not high enough! Thoughts.
Superannuation - Making extra payments
- Thread starter HeadsOnBeds
- Start date
If the extra super contribution is a small part of your total spare cash-flow and you have also invest the other part of the spare cash in either paying off debts or invest in share, and you are at higher tax rate then IMHO why not ? but it also depends on how close you are to the preservation age. For us, i put extra to the maximum contribution cap allowed.
Just my thoughts.
Ta
Anne
Just my thoughts.
Ta
Anne
You need to look at all of your finances rather than just one aspect. Super can be your outsourced managed exposure to equities leaving this aspect to the fund managers in your balanced investment portfolio.
Your expertise/interest lies in property so you can control this investment.
By contributing to super (via salary sacrifice), you can reduce your taxable income and have all future earnings within super taxed at lower rates.
Your expertise/interest lies in property so you can control this investment.
By contributing to super (via salary sacrifice), you can reduce your taxable income and have all future earnings within super taxed at lower rates.
Super contributions are not personal income. Bank wont see it. "Salary Sacrifice (SS)" means just that. Lenders will see a lower income. The SS isnt personal savings so they wont consider it.
SS can provide some sound asset protection strategies for some which is seperate to the issue of "saving". Creditors cant normally access your super (there are some catches). So a bankrupt can still keep a large super balance accum over time. Aggressive SS strategies may be an effective long term savings strategy for some high income, high risk occupations for that reason alone. From a family law perspective though you may create a monster if you are thumping contribuitions but wife isnt. In time you divorce and she wants a share of your super too. No asset protection from her.
Beware of SS and super if you are young and may access future "benefits" such as family tax benefit. Tax rules still count SS contributions and report it to all other Govt agencies like Centrelink so any family benefits when your wife ceases work to raise kids will be based on income + super sal sac for all income tests.
Hi
If the salary sacrifice portion is purely discretional (and is likely to be ongoing into the foreseeable future) and not required to support a particular super fund commitment then the answer is yes....most lenders will add this back as income if it can be stopped at anytime in the future.
Some lenders might even want to see evidence of this happening for a period before seeing at as 'acceptable income'.
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I would agree with Mike, as long as it is purely discretionary and you may need an employment contract to validate that it is, most lenders tend to add salary sacrificing to super back for servicing purposes.
As to whether it is worth 'sacrificing' today's dollars for retirement funds in 40 years will depend on your own goals. For those starting a career and early in their working life, my general preference is to build an asset base outside super that will provide flexibility and capital growth over time. Capital preservation is important in the early days of investing. For those older and closer to retirement, by all means contribute more into super if you have surplus funds to do so. Super is a tax effective structure so use it when it will give you the greatest benefit but you cannot access it until retirement or do much with it.
That said, having more in super for a longer period should enhance the compounding effect over longer years.
As to whether it is worth 'sacrificing' today's dollars for retirement funds in 40 years will depend on your own goals. For those starting a career and early in their working life, my general preference is to build an asset base outside super that will provide flexibility and capital growth over time. Capital preservation is important in the early days of investing. For those older and closer to retirement, by all means contribute more into super if you have surplus funds to do so. Super is a tax effective structure so use it when it will give you the greatest benefit but you cannot access it until retirement or do much with it.
That said, having more in super for a longer period should enhance the compounding effect over longer years.
Thanks for the help guys. It's purely discretionary, out of my own company/trust. Whether it is worth locking it up for the next 25 years is the other question!!!! I'm already heavy in property, and very CF+, I've got a couple of months to think about it before eofy...
Whoa.....
A trust paying super contributions ??? If that's correct you might have a issue needing review. If its a company - Not an issue.
Generally a trust cant "employ" a person who is also an eligible beneficiary. The trustee can run a business and employ other staff but tax issues arise if a potential beneficiary is a worker. Trust distribution v's salary. Its like the common law principles that prevent a partnership paying wages to partners. Therefore the contribution CANT be sal sacrificed as its non-deductible anyway and the trust may have a trust income issue. (You didnt distribute enough, trustee taxed at highest marginal rate). The contributions would be NON-CONCESSIONAL and not taxed etc Recent case refused a company trustee deductions for super for Directors so you cant interpose the trustee company and claim directors / employees basis either.
This income problem is one of the pitfalls of using a DT to operate a trading entity that employs relatives. No wages for some workers thus no super yet workers comp applies to some of the trust distribution. Can also be a issue to lenders if borrower relies solely on a trust distribution for income.
Ditto PSI entities actually dont have a salary sacrifice issue as tax law doesnt consider "ordinary time earnings" and personal services income... So that the contribution cap is the only concern.
A trust paying super contributions ??? If that's correct you might have a issue needing review. If its a company - Not an issue.
Generally a trust cant "employ" a person who is also an eligible beneficiary. The trustee can run a business and employ other staff but tax issues arise if a potential beneficiary is a worker. Trust distribution v's salary. Its like the common law principles that prevent a partnership paying wages to partners. Therefore the contribution CANT be sal sacrificed as its non-deductible anyway and the trust may have a trust income issue. (You didnt distribute enough, trustee taxed at highest marginal rate). The contributions would be NON-CONCESSIONAL and not taxed etc Recent case refused a company trustee deductions for super for Directors so you cant interpose the trustee company and claim directors / employees basis either.
This income problem is one of the pitfalls of using a DT to operate a trading entity that employs relatives. No wages for some workers thus no super yet workers comp applies to some of the trust distribution. Can also be a issue to lenders if borrower relies solely on a trust distribution for income.
Ditto PSI entities actually dont have a salary sacrifice issue as tax law doesnt consider "ordinary time earnings" and personal services income... So that the contribution cap is the only concern.
I'm not so sure about that Paul. A partnership can't employ a partner as he/she can't be employee and employer.
A trust with a corporate trustee does not have that issue. You obviously have to be careful with distributions, but I can't see al egal reason that prevents this? Happy to be shown otherwise.
PS - I advise our clients running their business through a trust that they shouldn't be an employee, due to the added on costs. The superannuation can then be contributed as a personal contribution.
