Over the last few years, there have been plenty of stories in our news sources about mostly casual and part-time employees being underpaid, and it’s not only corner shops and celebrity chefs being caught out, but our big national corporations as well. And while most of the issues have been related to overtime and other entitlements, regular, full-time salaried workers are not immune from being short-changed – especially in the area of superannuation.
This is one of the reasons why organisations such as Industry SuperFunds have created simple to use pay calculators that can predict both the amount of super your employer should be contributing, and the amount of tax (and Medicare Levy) you can expect to pay this financial year – or better still, get back as a refund!
More people receive a tax refund now because of LMITO, the Low and Middle Income Tax Offset that started to deliver higher tax refunds from July 2020. LMITO is particularly broad with government estimates showing over 10 million Australians will benefit. But remember, offsets like LMITO are paid when you submit your tax return so don’t look for it on your pay slip.
Be frugal with your tax
The Commonwealth Government sets the tax rates and tax brackets each year, and these are managed by the ATO. Unlike super however, there are more anomalies and variations, such as different tax obligations for students receiving a government loan (e.g. HELP). There are also different tax brackets for being a backpacker on a working holiday, or if you’re not an Australian resident. Thankfully, clever online pay calculators can be adjusted to take these things into account. It can also adjust Medicare Levy obligations for overseas citizens working in Australia.
Reducing tax the super way.
Another handy little gadget on the Industry SuperFund calculator can predict how much you could save in tax, by paying into your super on top of what your employer is paying. It’s a nifty system called salary sacrificing, and basically means arranging with your employer to take an agreed amount from your pay – before tax is calculated – and adding it to your super, as a supplement to your employers’ own super contributions.
How does this help? Well, the key is in the fact that super contributions get taxed at a lower rate than your regular income. So, let’s say you earn $80,000 and you’ve arranged for your employer to pay $350 per month from your salary into your super fund (in addition to the 9.5% super they’re obliged to pay).
Instead of that $350 per month being calculated at the regular tax rate, it is calculated at the lower ‘concessional’ rate of just 15%, slicing around $1400 off your annual tax bill.
What’s more, all those $350 contributions then sit in your super account, steadily earning compound interest and so, not only do you save on tax this year, but you’re building a very handy nest egg to enjoy when the time comes to say farewell to the working week and settle into what is, hopefully, a comfortable and carefree retirement.
If you haven’t checked your super payments recently, now is the ideal time to do it by heading to a pay calculator and comparing its results to your most recent annual pay summary statement – making sure that it matches the super payed by your employer. If it doesn’t, it’s in both yours and your boss’s best interest to have a chat.