Superannuation continues to be a solid tax structure in which to hold investments regardless of the returns funds are currently generating, according to ING Australia head of technical sales strategy Andrew Lowe.
The tax effectiveness of superannuation stems from the fact that contributions that have been salary sacrificed are only taxed at 15 per cent, which is significantly lower than the marginal tax rate applying to a vast number of employees in the workplace.
Even in extreme conditions where investments were returning zero income and zero capital growth, the tax efficiency that applies to contributions would in general result in an individual salary sacrificing arrangement into super receiving a benefit, Lowe said.
However, the degree of benefit an individual receives from this strategy will depend on their marginal tax rate.
At a marginal rate of 16.5 per cent you would concede it is marginal, Lowe said.
“At a marginal tax rate of 31.5 per cent there is a distinct advantage in the salary sacrifice arrangement and certainly at 41 per cent and 46.5 per cent that advantage is multiplied,” he said.
There were, however, a few implications regarding the superannuation guarantee levy that people needed to be aware of before entering a salary sacrificing arrangement.
“Take a client on $100,000 salary. You’d argue at the moment their superannuation guarantee obligation is $9000. If that employee entered into an arrangement to salary sacrifice $50,000, technically it falls straight away from $9000 to $4500,” Lowe said.
“But if that employer were to use the $50,000 worth of salary sacrifice contributions to fully satisfy their super guarantee obligations, it would mean the employee’s package under that arrangement would fall from $109,000 to $100,000.”
