You don’t have to pay yourself super, but when you retire, you might be glad you did.
You can make regular or lump sum payments, can usually claim a tax deduction on contributions, and may be able to save tax.
Why pay yourself super
There are advantages to contributing to super, depending on the type of contribution made:
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You save for your retirement.
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You can claim a tax deduction for super contributions.
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Super contributions are taxed at 15%, so you may save tax depending on your situation.
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Super investments usually get better returns than bank savings accounts, so your savings will grow faster.
Work out how much you can save for your retirement.
How to pay yourself super
If you already have a super fund, check that you can make contributions when you’re self-employed. You’ll need to give your fund your tax file number (TFN) so they can accept contributions.
Check if moving from employee to self-employed affects the insurance cover through your super. Insurance terms and conditions vary from fund to fund.
Transfer a regular amount or a lump sum
There are two ways to contribute, depending on how you pay yourself. If you receive:
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A wage — set up a regular transfer into super from your before-tax income.
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Income from business revenue — transfer a lump sum when you have enough cash flow.
Tax deductions for super contributions
You can claim a tax deduction for contributions you make from your after-tax income (known as personal super contributions).
To claim a tax deduction, you need to send a ‘Notice of intent to claim’ form to your super fund and receive an acknowledgement from your fund.
See claiming deductions for personal super contributions on the Australian Taxation Office (ATO) website for detailed information.
Always confirm the details of any super contributions with your accountant or tax agent.
How much to contribute to super
As a guide, employers contribute at least 10.5% of an employee’s earnings to super.
There are limits to how much you can contribute each financial year:
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up to $27,500 in concessional contributions (from your pre-tax income, for which you can claim a deduction), and
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up to $110,000 in non-concessional contributions (from your after-tax income)
The ATO has more information about super contribution caps.
If you’re on a low income, you may be eligible for government super contributions, see super contributions.
Talk to us today if you’re self-employed and would like to start contributing to your super. Call us on (03) 9769 9500.
Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/grow-your-super/super-for-self-employed-people
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
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