Activity 11
James aged 60 is currently employed on a full time basis with Sandleham Pty Ltd. He is currently earning $150,000 p.a. He has come to you seeking advice in relation to his superannuation contributions. He has heard about salary sacrificing and would like to receive some more information in relation to the tax benefits of salary sacrificing. He has worked out that he can afford to make extra contributions of approximately $9,000 on top of the SG. He has requested that you show him the difference in tax that he will pay as a result of a $9,000 salary sacrifice arrangement. In order to facilitate this show below the tax that he would pay now without any salary sacrifice arrangement versus the tax he would pay if he salary sacrificed an additional $9000. Assume James has private health insurance and does not incur the Medicare levy surcharge.
Activity 12
What is the spouse offset entitlement in each of the following cases for the current income year.
Bill and Sally are married, and during the current income year, Bill contributes a total of $10 000 to a complying superannuation fund for Sally. Assume that Sally’s assessable income and reportable fringe benefits total in that year is $39,000.
James, a 60-year-old employee at Sandleham Pty Ltd, is keen to explore the potential tax benefits of salary sacrificing for his superannuation contributions. With a current annual income of $150,000, he’s contemplating making additional contributions of approximately $9,000, on top of the Superannuation Guarantee (SG) contributions. His goal is to understand the tax implications of this decision. This advice will delve into the tax implications of both scenarios – with and without the salary sacrifice arrangement.
Current Tax Situation without Salary Sacrifice: Currently, James earns $150,000 annually. His tax liability is calculated based on the progressive income tax rates. Without any additional contributions, he’s subject to the respective tax brackets for his income. Let’s illustrate the tax calculation:
Taxable Income: $150,000
Tax on first $18,200: 0% = $0
Tax on next $41,000 at 32.5% = $13,325
Tax on remaining $90,800 at 37% = $33,596
Total Tax Liability without Salary Sacrifice = $13,325 + $33,596 = $46,921
Tax Situation with $9,000 Salary Sacrifice: If James opts for a salary sacrifice arrangement, contributing an additional $9,000 to his superannuation, this amount will be deducted from his taxable income. Consequently, his taxable income will be reduced to $141,000 ($150,000 – $9,000). Let’s calculate the new tax liability based on this reduced income:
Taxable Income: $141,000
Tax on first $18,200: 0% = $0
Tax on next $41,000 at 32.5% = $13,325
Tax on remaining $81,800 at 37% = $30,286
Total Tax Liability with $9,000 Salary Sacrifice = $13,325 + $30,286 = $43,611
Tax Savings with Salary Sacrifice: By salary sacrificing $9,000 into his superannuation, James stands to save $46,921 – $43,611 = $3,310 in taxes for the year.
It’s important to note that superannuation contributions are subject to concessional tax rates within the super fund. Generally, these rates are lower than individual income tax rates. However, any withdrawals from the super fund in the future will also be subject to applicable taxation rules.
In conclusion, James could potentially save $3,310 in taxes for the current year by opting for a salary sacrifice arrangement and contributing an additional $9,000 to his superannuation. It’s advisable for James to consult with a financial advisor or tax professional to ensure this strategy aligns with his long-term financial goals and takes into account his unique circumstances.
Activity 12: Spouse Offset Entitlement for Superannuation Contributions
The spouse offset entitlement aims to provide tax relief to individuals who make contributions to their spouse’s superannuation fund. Let’s analyze the cases of Paul and Liam, and Bill and Sally to determine their eligibility for the spouse offset entitlement.
Case 1: Paul and Liam Liam, in a de facto relationship with Paul, contributed $4,000 to Paul’s superannuation fund. Paul’s assessable income and reportable fringe benefits amount to $35,000.
In this scenario, Liam is eligible for the spouse offset as he contributed to Paul’s superannuation. The offset amount is 18% of the contributions, up to a maximum of $540. Therefore, Liam can claim a spouse offset of 18% * $4,000 = $720, since it doesn’t exceed the maximum limit of $540. This offset will reduce Liam’s overall tax liability.
Case 2: Bill and Sally Bill, married to Sally, made a total superannuation contribution of $10,000 for Sally. Sally’s assessable income and reportable fringe benefits sum up to $39,000.
Similarly, Bill qualifies for the spouse offset in this situation. The offset amount is again 18% of the contributions, capped at $540. Bill can claim an offset of 18% * $10,000 = $1,800, which exceeds the maximum limit of $540. Therefore, Bill can claim the maximum offset of $540, resulting in a reduction of his tax liability.
Case 3: Bill’s TSB Concern Bill and Sally are married, and Bill has a Total Superannuation Balance (TSB) of $1,800,000, while Sally’s TSB is $150,000. Bill’s employer is required to contribute $30,000 in mandated contributions during the year. Bill is concerned about approaching the TSB limit.
Given that Bill’s TSB exceeds $1.6 million, he may face restrictions on making non-concessional (after-tax) contributions. These rules are subject to change, so Bill should stay updated with the latest regulations. While his employer’s mandated contributions are not counted towards the TSB, any additional contributions made by Bill could be subject to TSB-related limitations.
In conclusion, understanding the spouse offset entitlement and Total Superannuation Balance rules can lead to more informed financial decisions for couples like Paul and Liam, and Bill and Sally. To ensure accuracy and adherence to current tax laws and regulations, seeking advice from a qualified tax professional or financial advisor is recommended.
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