How can you reduce tax and build up assets for retirement?

The Commonwealth Government has consistently indicated its preference for working Australians to build their assets for retirement using superannuation. As an incentive the Commonwealth has reduced the tax rate on superannuation contributions to 15% if the contributions are made by salary sacrifice.

Salary Sacrifice is the reassigning of your wage back to your employer who then places these wages into your superannuation as an employer contribution. This avoids the contribution initially being taxed at your marginal tax rate before being placed into your superannuation fund.

This strategy can be used where both employer super guarantee and employee salary sacrifice contributions amounts to $35,000 for those people who were aged 49 or over at 30/06/2016. For those people under this age, the maximum pre-tax contribution is $30,000 p.a. Taking effect from 1 July 2017, the annual cap on concessional (pre-tax) super contributions will reduce to $25,000, regardless of age.

By reducing the tax on superannuation contributions down to 15% a worker can save up to 31.5% tax at the top marginal tax rate. This would help significantly in building up assets for retirement.

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