tax effectiveness - super

Consider three scenarios:
a. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 31.5%).
b. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 46.5%).
c. employer pays $5,000 a year into super account (15% contributions tax applies).


Saving through super can be much more tax effective than saving the same amount outside super. And this can make a real difference to how much money I will eventually have for your retirement.

With this illustration, after just one year a person who pays 31.5% tax (a) would have over 20% more money in their super account and 35% more money after 20 years. That’s a difference of $29,754 if person (a) salary sacrifices into super. Whereas the benefits to a person (b) who pays 46.5% tax are even greater, with almost twice as much money after 20 years. That’s a difference of $52,904 if person (b) salary sacrifices into super.
What’s really impressive is that this isn’t smoke and mirrors, it’s simple mathematics.
The contributions and performance returns inside super are taxed at a maximum of 15%, so they compound at a much faster rate. Outside super the salary and performance returns are taxed at 31.5%* and 46.5%* so the after tax returns are much lower.


source: http://www.colonialfirststate.com.au