Salary Sacrifice and TRIS Case Study Example
Let's consider a Case Study demonstrating how much tax you can save by commencing a TRIS Strategy in combination with a Salary Sacrifice Strategy whilst you are still working.
Example:
Barney is 59 and is still working. That is he is NOT "Retired". Barney has a Super Benefit of $1,000,000. His Super Benefit is broken down into a "Taxable Component" of $800,000 (built up from Employer Contributions) and a Tax Free Component of $200,000 (built up from Personal Non Concessional Contributions). This means that 80% ($800,000/$1,000,000) of Barney's Super Benefit is Taxable and $20% ($200,000/$1,000,000) is Tax Free.
Barney commences a TRIS on 1 July 2023. This is the appropriate Pension to commence given that Barney is NOT "Retired". Barney withdraws 4% of his Super Benefit as a Pension, that is $40,000. The Tax Free portion of the Pension Income is 20% (i.e. $8,000) and the Taxable portion of the Pension Income is 80% (i.e. $32,000).
Barney has no income other than his salary income from working of $100,000. The SMSF has generated a Taxable Income of $60,000 made up of taxable interest and dividend income and realised capital gains from the sale of shares during the financial year. Franking Credits on the dividend income is $10,000.
Barney is contemplating whether to Salary Sacrifice $15,000 into his SMSF acknowledging that he can take a Pension payment of $40,000 to supplement the amount sacrificed into his SMSF. The tax savings of implementing a Salary Sacrifice Strategy in combination with a TRIS are detailed below:
Case Study Result
| Tax Result in SMSF |
TRIS & Salary
Sacrifice (Under 60)
|
TRIS & Salary
Sacrifice (Over 60)
|
No TRIS &
No Salary Sacrifice
|
| SMSF Income |
$60,000 |
$60,000 |
$60,000 |
| Salary Sacrifice Contributions |
$15,000 |
$15,000 |
$0 |
| Dividend Gross Up |
$10,000 |
$10,000 |
$10,000 |
| Total Income |
$85,000 |
$85,000 |
$70,000 |
| Tax on SMSF Income |
($10,500) |
($10,500) |
($10,500) |
| Tax on Salary Sacrificed Contributions |
($2,250) |
($2,250) |
$0 |
| Franking Rebate |
$10,000 |
$10,000 |
$10,000 |
| SMSF Tax Refund / (Payable) |
($2,750) |
($2,750) |
($500) |
| Tax Position in Personal Name |
TRIS & Salary
Sacrifice (Under 60)
|
TRIS & Salary
Sacrifice (Over 60)
|
No TRIS &
No Salary Sacrifice
|
| Salary Income |
$100,000 |
$100,000 |
$100,000 |
| Less: Salary Sacrifice |
$15,000 |
$15,000 |
$0 |
| Taxable Pension Income |
$32,000 |
$0 |
$0 |
| Total Taxable Income |
$117,000 |
$85,000 |
$100,000 |
| Tax Payable |
($30,832) |
($19,792) |
($24,967) |
| Low Income Tax Rebate |
$0 |
$0 |
$0 |
| Pension Rebate |
$4,800 |
$0 |
$0 |
| Personal Tax Refund / (Payable) |
($26,032) |
($19,792) |
($24,967) |
| Overall Tax Result |
TRIS & Salary
Sacrifice (Under 60)
|
TRIS & Salary
Sacrifice (Over 60)
|
No TRIS &
No Salary Sacrifice
|
| SMSF Tax Refund / (Payable) |
($2,750) |
($2,750) |
($500) |
| Personal Tax Refund / (Payable) |
($26,032) |
($19,792) |
($24,967) |
| TOTAL Tax Refund / (Payable) |
($28,782) |
($22,542) |
($25,467) |
Case Study Result - Over 60
The above example demonstrates that commencing a TRIS in conjunction with a Salary Sacrifice Strategy when over age 60 has saved Barney $2,925 (i.e. $25,467- $22,542). In this example, this is an annual tax saving and demonstrates the taxation savings available by commencing a TRIS in conjunction with a Salary Sacrifice Strategy after age 60. A more interesting aside is that Barney Salary Sacrificed $15,000 in pre-tax income. After tax he would have received only $65,208 (i.e. $85,000 - $19,792) to use to fund living expenses. The extra income he has sacrificed has been made up by accessing a Pension Income of $40,000. Barney has also maintained his living standard and saved $2,925 in tax. You should obtain your own independent financial and taxation advice about which course of action is appropriate to your circumstances.
Case Study Result - Under 60
The above example demonstrates that Barney is actually worse off by commencing a TRIS in conjunction with a Salary Sacrifice Strategy when under age 60 as he needs to pay an additional tax of $3,315 (i.e. $28,782 - $25,467). The TRIS Strategy in combination with a Salary Sacrifice Strategy is not always beneficial because TRIS pension payments are taxed when you are under 60. The results vary from person to person. You should obtain your own independent financial and taxation advice about which course of action is appropriate to your circumstances.
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