Working for yourself can be liberating, but it also comes with a lot of responsibilities. One that’s often overlooked by business owners and the self-employed is paying your own super. And remembering that you’re responsible for paying super to any eligible employees you take on as your business grows.
Data from the Association of Superannuation Funds of Australian (ASFA), shows that people who are self-employed often have lower super balances than their employees. In fact, according to ASFA, approximately 20% of those who are self-employed have no super at all – compared to only 8% of employees1.
If you’re self-employed, consider your retirement needs and understand how paying yourself super could benefit you – and your business.
Your growing business and your super – what’s expected
When you’re growing a business, paying super (and wages) to any employees is your first priority (it’s also a legal requirement). Unfortunately, for many business owners, contributing to your own super may be less of a priority and drop to the bottom of your to-do list. However, depending on how your business is setup, paying yourself super could also be a legal requirement.
Does your business setup mean you legally need to pay yourself super?
If you were working for someone else, your super contributions would be paid by your employer. When you’re running your own business, and paying yourself, it’s not always clear if super is compulsory, and it’s important to know what your legally obligated to do.
Depending on the structure of your business, you may not have to pay yourself super. For example, if you’re self-employed, a sole trader or in a partnership, you generally don’t have to make super guarantee payments to yourself2. So any super you pay to yourself will be up to you, rather than a legal requirement.
However, if you’re employed by your business under a traditional PAYG setup i.e. you draw a wage from the business, then you may be legally required to pay yourself super.
You can find more information about if you have to make your own super contributions, or not, on the ATO’s website.
Should you pay yourself super?
If super’s not a legal obligation, you might not think it’s a priority for you.
However, most people will live in retirement for at least 25 years. It’s a substantial amount of time, often referred to as ‘the next third’. How much super you’ll need in retirement can depend on a few factors. For example, what kind of retirement do you want? Do you want to travel the world, buy a new car, and pay off a mortgage? Or do you want a simpler life? The reason this is important to think about is that it’ll help determine how much money you’ll need in retirement, and could help you plan how much you’ll need to contribute to your super over your working life.
AustralianSuper’s Super Projection Calculator can help give you an idea of what your future income will look like, with and without super. It can also show you how adding a small amount extra each year could make a big difference to your retirement lifestyle down the track.
Things to know more about paying yourself super
1. You might be able to claim a tax deduction
If you’re paying yourself super there’s a chance you could be eligible for a tax deduction.
There are 2 main types of contributions for business owners and the self-employed: non-concessional and concessional.
After tax (non-concessional) contributions
Non-concessional contributions are contributions you make from 'after-tax' dollars. The limit is $110,000 per year (or more if using the bring-forward rule). These are contributions for which you haven’t claimed a tax-deduction.
Before-tax (concessional) contributions
You can sometimes claim a tax deduction for contributions you make to your own super as non-concessional contributions. The amount you can claim is generally up to the annual concessional contributions cap.
If you contributed less than the concessional contributions cap in previous business years, your contribution cap may be higher. This is called the carry-forward of unused concessional contributions.
If you’re over 67 and these contributions aren’t coming from an employer, they’re seen as personal contributions. You’ll need to satisfy the work test to make these.
Before you make any extra contributions consider your debt levels as well as current and future financial commitments.
How to claim a tax deduction for your super contribution
To claim a tax deduction for any personal super contributions, you’ll need to let your fund know you’re planning to claim a deduction. Contact your fund before you lodge your income tax return. When you submit your tax return you'll be able to claim the deduction on any non-concessional personal contributions you’ve made subject to your concessional contributions cap limit.
Once your deduction has been processed, the amount claimed as deduction becomes a concessional contribution. contributions tax will be deducted from your account.
To claim a tax deduction for personal super contributions, you must lodge a notice of intent to claim with your fund. This must be done before you combine your super, transfer it to another account (such as a pension) or make a withdrawal.
2. You can carry forward super contributions into the new financial year
Depending on your existing super balance, you may be able to carry forward any unused portion of the concessional contributions cap from previous years for up to 5 years. This is useful to know for anyone with a growing business.
As you become more successful, or have a good quarter, you may be able to pay extra contributions to your super.
Before making extra contributions, consider your debt levels as well as current and future financial commitments, including any super payments you may need to make to eligible employees.
3. Remember that insurance cover is available through your super
Nobody likes to talk about death, or not being able to work due to injury or illness but making sure you could survive without pay for a period of time can bring a sense of security to any business owner.
The good news is you may already have Death, Total & Permanent Disablement (TPD) and Income Protection cover through your super. If being self-employed is way of working for you, check with your super fund to ensure you’re correctly insured and prepared for the worst.
It can be useful to reassess your insurances annually, or when major life changes occur such as getting married, having a child or buying a property.
If you join AustralianSuper as a self-employed worker, you’ll join our Personal Plan. Cover isn’t provided automatically with this plan, but you can apply for it anytime. You’ll just need to provide detailed health information for our insurer to consider.
4. You could be eligible for a Government superannuation co-contribution
The Australian Government has an initiative that supports low and middle-income earners to boost their super contributions, helping to grow their retirement savings. This is called the super co-contribution and put simply, the Government matches a certain amount of contributions you make to your super, up to a maximum. There are some eligibility criteria business owners need to meet, so the super co-contributions may only apply to growing businesses.
The co-contribution gets paid directly into your super account after you’ve lodged your tax return for that year, proving your income.
For more information download our factsheet: Add to your super with government co-contributions (PDF, 288k)
Business owners with employees
Understand your super guarantee obligations to any employees
If your business employs other people, you may need to make sure you’re paying them super in line with the Superannuation Guarantee.
The superannuation guarantee, or SG, dictates the minimum percentage of an employee’s earnings you need to pay into their super fund. This percentage is controlled and legislated by the Australian Government.
From 1 July 2021, the superannuation guarantee is 10%. Legislation states that super payments will increase incrementally each year until they reach 12% in 2025. These increases have been legislated by the Australian Government.
If your employees are aged 18 or over and earn more than $450 a month (before tax), then they’re generally eligible to receive SG super contributions. Visit the ATO for the latest information on this rule.
If your employees are under 18, they must also work more than 30 hours per week to be entitled to SG contributions. Contractors may also be eligible, depending on whether they’re considered an employee for super purposes.
Business owners must pay SG into an employee’s complying super fund at least 4 times a year, by the quarterly due dates. Make sure you’re aware of your responsibilities, or speak to your accountant, or an adviser for guidance. AustralianSuper members can find out more on the Fund’s Super for Employer pages.
Tip: Find and consolidate all of your super
If you’ve had more than one job before you started your own business, you could have ‘lost’ super.
You can find any lost super you may have using the ATO online services through myGov . Alternatively, if you’re an AustralianSuper member – and give the Fund consent to use your Tax File Number (TFN) – we can help track down your lost super.
If you find lost super, you might want to consider consolidating those accounts into one. By doing this, you can be sure you’re only paying one set of fees and know where to go for any insurance changes and claims.
Before making a decision to consolidate multiple funds, look out for any fees or charges that may apply for closing an account. Make sure you also understand the impact of consolidating your accounts on any additional benefits, such as insurance.