Q & As of the month

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

By Stuart Sheary, Senior Technical Manager

Q: The Government recently legislated an increase in the low income tax offset (LITO) from $455 to $700 and have increased the thresholds for the personal marginal tax rates of 32.5% (previously $37,000, increased to $45,000) and 37% (previously $90,000, increased to $120,000).

How do these changes impact on salary sacrificing or making personal tax-deductible contributions to super?

A: The following table compares the tax benefits before and after the personal income tax changes for salary sacrifice or making personal tax deductible contributions of $10,000 to super.

Taxable incomeTax savings on salary sacrificing $10,000 - before 2020/2021 tax changesTax savings on salary sacrificing $10,000 - after 2020/2021 tax changes
$40,000 $825 $500
$50,000 $1,500 $1,000
$60,000 $2,100 $2,100
$70,000 $2,050 $2,050
$80,000 $1,950 $1,950
$90,000 $1,950 $1,950
$100,000 $2,700 $2,250
$125,000 $2,700 $2,475
$150,000 $2,400 $2,400
$200,000 $3,200 $3,200

*Assumes contributions within the client’s concessional contribution cap and figures net of 15% ‘contributions’ tax

Some clients may see the benefit of salary sacrifice or making personal tax-deductible super contributions reduce as a result of the tax changes. This impact is particularly evident for clients where the sacrificed income or tax deduction falls across taxable income between $37,000 - $45,000 and $90,000 - $120,000. Generally, salary sacrifice or personal deductible super contributions for these clients remains a useful wealth building strategy, however estimated benefits for the 2020/2021 financial year may need to be reviewed to confirm the strategy remains appropriate.

For many, the benefits of salary sacrifice or personal tax-deductible super contributions will remain unchanged and continue to be a useful wealth building strategy.

The availability of the low-income tax offset (LITO) and the low to middle income tax offset (LMITO) allow clients to earn approximately $22,810 without paying tax or the Medicare levy. Clients can earn up to $23,225 before paying tax but at this level of income may be liable for a small Medicare levy. Clients who are also entitled to the senior and pensioner tax offset can earn even more before paying any tax. Clients wouldn’t ordinarily reduce their taxable income via salary sacrifice or personal deductible contributions below their effective tax-free threshold.

Advisers wishing to identify the benefits of salary sacrifice to super can use our Salary Sacrifice Superannuation Calculator, which can be found on the IOOF Fast Fact Finder website.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.