Build your own super
If you’re self-employed or work as a contractor, super may not be at the top of your priority list. But by taking action now, you can make sure you have enough money to live on when you stop working.
- Why contribute to super when you’re self-employed?
- How to contribute to super
- Claiming a tax deduction for super contributions
- How to be eligible for government super contributions
Why contribute to super when you’re self-employed?
When you’re employed, your employer will make contributions to your super fund over your working life, which accumulate until you retire. These contributions along with investment returns can then be used to pay you a tax-free income when you retire. But what happens when you’re your own employer?
When you work for yourself it’s up to you to provide for your retirement income. Many self-employed people receive income primarily for their labour, which means when you stop working you stop getting paid. You can plan for that day by putting part of your income into a super fund.
Super is an environment that gets preferential tax treatment, meaning you generally pay less tax on earnings within super, and you can usually get better investment returns than a bank savings account. Your money will be locked away until you retire, but that can be a good thing if you don’t find it easy to save regularly.
How to contribute to super
If you already have a super fund from previous employment, check with your fund that you can continue to make personal contributions while self-employed. You will need to give your fund your tax file number (TFN) so they can accept contributions.
If you don’t have a super fund, see Choosing a super fund for tips on finding one that meets your needs.
If you’re self-employed, always confirm the details of any super contributions with your accountant or tax agent.
There are two ways to contribute, depending on how you pay yourself. If you receive:
- a wage, set up a regular transfer into super from your before-tax income (as a guide, employers currently contribute 9.5% of an employee’s ‘ordinary time earnings’ to super)
- income from business revenue, you may find it easier to periodically transfer a lump sum to super when you have sufficient cash flow.
For tips on how to build up your super, see Is your super on target?.
Claiming a tax deduction for super contributions
If you are self-employed you can claim a tax deduction for your super contributions.
You can contribute up to $25,000 per year in concessional super contributions (those you claim a tax deduction for) and an additional $100,000 a year in non-concessional super contributions (those you don’t claim a tax deduction for).
See the Australian Taxation Office (ATO) for information on claiming deductions for personal super contributions.
How to be eligible for government super contributions
If you earn less than $37,697 per year you could be eligible for a government super contribution of up to $500. Even those earning up to $52,697 may still be eligible for some government contributions. Consider making after-tax contributions to super to qualify for the government co-contribution.
If you earn $37,000 or less per year, you may get a ‘low income superannuation tax offset’. The amount, up to $500 annually, will be 15% of the concessional super contributions you make to your super account during the financial year.
Once you lodge a tax return for the financial year, the government will work out how much you’re entitled to and automatically pay the amount into your super. See the ATO for more details on super co-contributions.
Don’t leave it too late. Start putting super money away now to ensure you have enough to live on later.
- Is your super on target?
- Self-employed people – how to manage your finances
- Super for employers – what you need to pay into your employees’ super accounts
- Running a small business in Australia – ASIC booklet
Last updated: 13 Feb 2019
Read the original article or for updates visit ASIC’s Money Smart website.