Self-employment and super: Planning your retirement

You don’t have to contribute to your super if you work for yourself, but making regular payments is smart.

Legally speaking, there are no superannuation requirements for the self-employed. However, given that adding to your super opens up the opportunity to reduce your tax, as well as take advantage of some generous government co-contributions, it’s worth thinking about.

Super rules for the self-employed

Working for yourself is exciting and challenging. When you’re trying to build your business, figuring out your superannuation may not be top of your priority list.

Self-employment and super

If you work for someone else, your employer is required to pay 9.5 per cent of your salary into a superannuation fund (this is known as the superannuation guarantee).

The situation is different for the self-employed. If you work for yourself there is no superannuation guarantee and no rules that say you have to pay any super at all.

Despite the fact that it is not compulsory, it is important to think about investing in your superannuation to ensure that you have a comfortable retirement. The government also provides a number of incentives to encourage the self-employed to invest money into their super.

Pick up a tax deduction

All individuals aged under 75 are entitled to a tax deduction regardless of the employment situations. The deduction is similar to what an employee receives when they salary sacrifice.

You can contribute up to $25,000 per annum and receive a concessional taxation rate of 15 per cent, rather than the marginal tax rate.

To make a claim you must notify your fund by completing a notice of intent to claim or vary a deduction for a personal super contribution. You can use your fund’s own form or write to your fund with your personal details.

Let the government help you out

If you have a total superannuation balance less than the transfer balance cap on 30 June of the year before the relevant financial year and make less than $51,813 a year (before tax) and make after-tax superannuation contributions, you are entitled to matching contributions from the government.

If you have earned less than $36,813 the co-contribution is capped at $500, based on $.50 from the government for every dollar you contribute.

If your total income is in between these figures, the government’s co-contribution will reduce progressively as your income approaches $51,813. You will not receive any co-contribution if your income is equal to or above this threshold.

There is no application for the co-contribution. If you are eligible and you have submitted your tax file number to your fund it will be paid to you automatically.

For low-income earners (those earning less than $37,000 per year), the government can make an additional contribution of up to $500 to your super annually. This is known as the low-income super tax offset contribution.

The amount you will receive is 15 per cent of the before-tax contributions you make to your super account in the financial year.

The Australian Taxation Office will pay the money directly into your super account, but do make sure your super fund has your tax file number. You will get the payment whether or not you lodge a tax return, but it will take longer if you don’t lodge a return.

Setting up a system

Having a systematic way of paying super can help make consistent payments.

Choosing a superannuation fund is the first step. Take a look at the types of investment options and insurance benefits each offers, and the different fees each charges.

You may also want to consider setting up a self-managed superannuation fund to expand your investment options.

Once you have decided on the type of fund you want to join, consider ways of making your super contributions. You could use BPAY, electronic funds transfer (EFT) or regular direct deposits.

Having a super nest egg is the key to a comfortable retirement. If you work for yourself, putting money into your superannuation can be worthwhile, and the government tax breaks and co-contribution options make it all the more so.

If you want to learn more about SMSFs, download an information pack. If you’re ready to establish an SMSF, you can apply now with ESUPERFUND.

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