Today's 'Monday Money Minute' looks at a powerful personal finance strategy - the salary sacrifice to superannuation.
The power of this strategy is that a significant amount of tax is saved by salary sacrificing income to superannuation, where it is taxed at a maximum of 15%, rather than paying income tax on this money which might be up to the rate of 46.5%.
However, some employers use a nasty trick. They only pay the 9% contribution on the after salary sacrifice income. Let's look at how that works. Let's say you earn income of $50,000. Your employer has to pay compulsory 9% contributions of $4,500. Let us now say that you decide to salary sacrifice $10,000 to superannuation - which will save you $1,650 in tax. Your income, after the salary sacrifice, is now $40,000. Some employers will only pay the 9% contribution on this amount - $3,600. You still end up ahead, however not by as much as if the employer had paid contributions on the full $50,000.
Only a minority of employers do this - most continue to pay the 9% on your full $50,000 salary. However, it is worth knowing what your employer is doing. You might just be better of moving on somewhere else......