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Mrs Sharp* is a 60 year old primary school teacher who receives a salary of $105,000 (not including superannuation) per annum. She has a GESB West State account which is what is known as a “constitutionally protected” fund. One of the features of this account is it lacks an annual concessional contribution cap. Whereas most people are limited in the amount they can contribute to superannuation in before tax contributions, WA Government employees with this type of account are only subject to a lifetime cap on their pre-tax contributions. Another benefit of the fund is that contributions are not taxed as they enter the fund but rather on exit. Although contributions are still taxed at 15% for most people (the same as for “regular” superannuation accounts) the member is advantaged by having this extra amount remain in, and be invested, their account for longer.
Since Mrs Sharp no longer has a mortgage, has significant personal savings and is close to retirement she can use her West State account to make very large salary sacrifice contributions for the next few years. Under a regime of no salary sacrifice, she pays personal income tax of roundly $26,345 on her salary. Under advice from Andep she instead opts to sacrifice 75% of her income to West State. This reduces her personal income tax to $1,530 and she instead will pay $11,810 contribution tax on those contributions when she retires. This taxation saving of roundly $13,000 can be achieved each year she continues working between now and retirement. Not only will this result in a better retirement outcome but it has allowed more of her funds to be in the tax free superannuation environment in retirement rather than being held outside of superannuation and potentially paying personal income tax on the earnings.
*name has been changed to protect the client’s privacy.