To compensate for the impact of Julia Gillard's carbon tax on the cost of living, income tax cuts will compensate anyone who earns less than $80,000. For further details about the tax cuts, see the following: Individual Income Tax Rates (ATO website)
Basically, the tax free threshold will increase from around $6000 to about $18000 and instead of being taxed 15% after that, you will be taxed 19%. For each dollar you earn above $37,000, instead of being taxed 30%, that marginal tax rate will increase to 32.5% and then eventually to 33%.
What this means is that, for those who earn between $37,000 and $80,000, you can cut your income tax by 33% (rather than just 30%) if you salary sacrifice. One option is to salary sacrifice into your superannuation fund. Money that goes into superannuation is taxed, of course, but it is only at 15%.
Be careful when you salary sacrifice into your superannuation fund as there is a limit. For younger people, there is a concessional contribution limit of $25,000 per year. It is best that you speak to a financial advisor if you are concerned about exceeded this limit.
Personally, I have taken this as an opportunity to salary sacrifice more into my superannuation fund. All it involved was sending an email to HR requesting it. I now salary sacrifice $600 per fortnight into my superannuation fund.
My reasons for salary sacrificing into my superannuation fund are not just monetary. There are also some personal reasons why I am doing what I am doing. I find that having too much money around doesn't help and actually makes me worried or anxious, so putting money aside (so that it is out of sight and out of mind) actually calms me considerably. Instead of doing something stupid with the money and losing it, it is now safely stored away in my superannuation fund, and I don't have to worry about it until I'm very old.
Some people argue that putting money into superannuation when you're young is a waste of money. They argue that superannuation funds invest money in the stock market, which underperforms residential real estate. They would prefer to be hit with the higher tax and then put the money into residential real estate (by paying off their mortgages). The problem with this argument is that is assumed two things: the first thing it assumes is that superannuation funds invest only in the stock market and not real estate. This is wrong. Superannuation funds typically offer investors with the choice of a range of investments, but typically industry super funds tend to offer shares, bonds, listed property, and cash. These investments, in my opinion, are fine. But if you are absolutely desperate to invest in residential real estate, you can set up a self-managed super fund (SMSF) and invest in residential real estate. The benefit of salary sacrificing into your superannuation fund is that you can save on tax, but it is wrong to assume that superannuation funds only invest in the stock market. The second assumption is that residential real estate outperforms the stock market. This is not true. Residential real estate is very hard to measure but most studies done on this topic find that a broad Australian stock index is roughly the same in growth as residential real estate over the last few decades. Of course, you can always cherry pick some story about some guy who purchased some home for x amount and then sold a few years later for ten times the amount. Likewise, you can pick and choose select stocks like Westfield and Fortescue Metals and launch the same story in favour of the stock market, but what this teaches you is that past returns mean nothing. Just because something has performed well in the past, it doesn't mean it will perform well in the future, and in the world of finance it tends to be the opposite: i.e. those assets that go up in price rapidly in the recent past tend to be overvalued, and a correction in the form of rapidly decreasing prices usually proceeds.
In other words, there is no solid evidence that residential real estate will outperform the stock market in the long run. The best we can do is to diversify across many types of investments, from the stock market, to cash, to bonds, and even listed property and maybe some residential real estate as well. Ecclesiastes 11:2 states the following: "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth."
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