Source
r/AusFinance•
shadowaway

A financial planner told me there's no point in salary sacrificing unless I get down to the next tax bracket. Is he correct?

Tax

He told me that the tax benefits of salary sacrifice aren't really effective until you can drop in to the next lowest tax bracket. But I thought we had progressive tax brackets, and that all that matters is the amount you choose to sacrifice.

So my understanding is that if I sacrifice $5,000, my taxable income will be lowered from $77k to $72k (excepting things like concessional tax rates) and I'll pay $3,572 plus 32.5c for every dollar over $37k. But he told me there's no point tax-wise unless I can get down to the $37k bracket.

Is he correct? For context, he works for the super fund my company uses so this was a free appointment.

Posted Feb 2, 2019, 12:33 AM UTC

7865
marty998•

Your planner is an idiot who doesn't understand marginal tax rates, or basic mathematics either.

197
shaftautopump•

Can you go into a quick FYI on the marginal tax rate bit? I salary sacrifice, it drops me a bracket. Even if it didn't, I still would just to stick it to the federal government.

-1†
[deleted]•

[deleted]

40
ur_meme_is_bad•

Haha dude the government doesn't want to support you in your old age. Salary Sacrificing is very much mutually beneficial.

6
pointlessbeats•

Except you can make it just personally beneficial, by salary sacrificing for a personal expenses card, rent, car loan, mortgage, eating out etc. I guess those things help the economy by giving you more spending though, but you don’t have to put anything towards super (if you work for the government or a not-for-profit.)

2
marty998•

Your tax saving is your marginal tax rate less 15% (because you pay 15% tax on salary sacrificed super contributions, same as the 9.5%).
So you being in the 34.5% bracket (including medicare) will save (0.345 - 0.15) x $5,000 = $975 in tax.

Your take home pay is reduced by $5000 x 0.655 = $3,275

Your super balance is better off by $4,250
You don't really "drop a bracket" it doesn't work that way - see the response from u/BudgetChemical

​

4
TomasTTEngin•

I went into a public hospital the other day to get some treatment. thanks for sticking it to me!

2
BangazNHash•

I’m an accountant that’s done financial planning and I think the next best thing you can do is write this idiot a 1 star review and run the fuck away.

165
tristanwaine•

Also an accountant and financial advisor. Second the 1-star review

33
[deleted]•

[removed]

1
misterfourex•

wait, he works for your super fund and advised you not to invest more money with them

this is gold

150
shadowawayOP•

I actually have a different super fund, I was just using this as a free appointment. So I'm safe, thank goodness.

19
Ptek11•

Report this fool to the ombudsman.

77
industryfundguy•

Name and shame the fund because wow that is really bad.

45
spoofy129•

Do financial planners have to be certified in any way in Australia? How is it possible a financial planner doesn’t understand basic income tax?

37
ImmediateDisaster6•

They sure do. This is alarming

35
Birdbraned•

Yup, they're certified and nationally registered and everything.

6
[deleted]•

[deleted]

13
[deleted]•

[removed]

1
Ranidaphobia•

I don't think financial planners are strictly speaking supposed to give tax advice.

That said this is pretty bad.

https://asic.gov.au/regulatory-resources/financial-services/financial-advisers-providing-tax-advice/

0
ribbonsofnight•

You sound like you have that right to me. Sounds like this advice isn't worth it even if it's free.

23
SmashPlayersRretards•

Taking a guess but he probably meant that it is more effective for people in the higher tax brackets. Depending on your situation the benefit received may not be worth the effort.

13
ribbonsofnight•

but I'd say that would only be true for someone earning under 37k

5
CollectableRat•

Even at 19 cents on the dollar, 19% of 5k is $950.

3
anotherguyishere•

Super is taxed at 15%, so really just a 4% benefit.

8
CollectableRat•

That's still $200.

7
passwordistako•

0% ROI is better than nothing.

The only thin OP needs to invest is a little time. No opportunity cost of investing elsewhere. I see no downside.

1
toyotafan74•

No - get an advisor who isnt a clown

11
smandroid•

But that means he can't give you a good laugh!

5
ImmediateDisaster6•

Your understanding is correct. It's literally just not taxing your income as normal, in the case of super you still pay some tax, but at the lower rate. In fact, it's less useful the lower the tax bracket you're in

11
fermilevel•

TL;DR - Tax Sacrifice = savings, period

Example: the higher your earn, for each dollar you sacrifice, the more you save on tax nominally. So I would argue that there are greater benefits to sacrificing if you are in the top end bracket! But you will save no matter which tax bracket you are in (except for the lowest one)

Highest Tax %Salary ExamplesacrificeTax Reduced
0.00%500050000
19.00%232005000950
32.50%4200050001625
37.00%9500050001850
45.00%18500050002250

​

9
souljah_adam•

Just adding to the great table you put up but I believe you would also save another 2% in tax due to Medicare levy and those lucky enough to be in the 45% bracket need to be mindful of the $25k super contribution limit as depending on salary and super contribution percentage they may be close to or even over already.

***Also - please check your actual contributions to super from your employer as there is a law loop hole that actually allows them to reduce their 9.5% minimum contribution once you start salary sacrificing. It is an absolute joke of a loop hole and any employer who's uses it should be named and shamed! Any good employer wouldn't do that to an employee but considering how many horror stories you hear about employers breaking the law and not doing super contributions at all I am sure this happens more than people realise. *Employers have to make contributions every 3 months minimum so don't freak if you don't see it after every pay! Don't just trust the payslip, check the super account to see that it actually goes in!

1
Evilmoustachetwirler•

This is not entirely correct. You need to take into consideration the contributions tax rate of 15% into superannuation. In your example the people on the lower tax bracket would be worse off by salary sacrifice. Take your 23200 income for example (I'm on phone so I can't include all the math) but that person would be better off making after tax contributions and picking up the government co contribution. On 23200 the tax would be $427 pa, but if the salary sacrifice their super would pay $750 contributions tax. So if they were to put the money in after tax they would be approx $650 better off overall

1
souljah_adam•

Just adding to the great table you put up but I believe you would also save another 2% in tax due to Medicare levy and those lucky enough to be in the 45% bracket need to be mindful of the $25k super contribution limit as depending on salary and super contribution percentage they may be close to or even over already.

***Also - please check your actual contributions to super from your employer as there is a law loop hole that actually allows them to reduce their 9.5% minimum contribution once you start salary sacrificing. It is an absolute joke of a loop hole and any employer who's uses it should be named and shamed! Any good employer wouldn't do that to an employee but considering how many horror stories you hear about employers breaking the law and not doing super contributions at all I am sure this happens more than people realise. *Employers have to make contributions every 3 months minimum so don't freak if you don't see it after every pay! Don't just trust the payslip, check the super account to see that it actually goes in!

0
smandroid•

So.... Did he fail at maths? 30% of non salary sacrificed $100 is $30. 30% of salary sacrificed $80 is $24. Using this principle, you've just saved $6 from the tax man.

6
string_beanson•

My understanding is, you're charged 32cents on the dollar normally in your current tax bracket. Salary that is sacraficed gross is only charged 15c to the dollar.

You can only sacrafice a maximum of 25k or so for this benefit. (This is to avoid very wealth people taking advantage of the system by dumping all their money into super shortly prior to retirement for less tax).

So if you're wanting to sacrafice 5k, you would be doing swell on the tax front and into the future, bearing in mind your super will grow nicely, so I have no idea what that guy was talking about.

4
gaynerd27•

For reference, the 25k Concessional contribution threshold includes super paid by your employer, any you salary sacrifice, and any you claim at the end of the year on your tax return as a deduction.

Those 3 lots combined can't be more than 25k

3
actionjj•

It's a pretty common that people misunderstand that tax rates are progressive, and marginal. Also that you don't get refunded deductions in full, but they merely lower your taxable income, so effectively you get back your marginal rate of tax on the deduction. Case in point - https://www.reddit.com/r/personalfinance/comments/am2cv0/my_coworker_turned_down_a_200000_bonus_because_it/

There are a lot of scams out there that convince people to spend money to save money on tax.

4
redrose037•

That’s American... last time I checked this is an Australia tax question?

1
actionjj•

US has the same personal tax setup, just different rates, and you can do joint tax returns with your spouse to equalize a high and low income earner. The linked example just shows how people confuse the concept of a progressive, bracketed tax system.

2
pointlessbeats•

The same logic is applied.

1
FoxBox1988•

You get what you pay for.

4
Tommyaka•

And the shonky award of the year goes to...

3
CollectableRat•

If it lowers your taxable income then that's a good thing. That's what it's all about isn't it? The higher your tax bracket then the more tax you save for income in that bracket. Only time there's no point is if your taxable income is less than 18k per year, that's a tax free bracket anyway.

3
gaynerd27•

cries in accounting

3
Phatsy1•

A financial advisor who doesn’t understand marginal tax brackets

3
je_veux_sentir•

He’s an idiot.

Far enough if he said it’s probably not worth salary sacrificing super because you’re 20. But this is plain stupid.

2