Superannuation tips for the self-employed

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. 

Make sure you know the different rules so you’re aware of your options and obligations.

 

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.

READ MORE: ATO – DO YOU NEED TO PAY YOURSELF SUPER

 

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? For example, 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. 

EXPLORE YOUR FUTURE: SUPER PROJECTION CALCULATOR

 

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: concessional and non-concessional.

Concessional contributions: As a business owner you can, in some cases, claim a tax deduction for contributions you make to your own super. These contributions should come from your before-tax income, and can be up to $25,000 per year. This is called a concessional contribution. You can make these concessional contributions up until you turn 75. If you’re over 65 you’ll need to satisfy the ATO’s work test

Non-concessional contributions: You can also make additional contributions of up to $100,000 per year, from your after-tax income, but this isn’t tax-deductible. This is called a non-concessional contribution. 

READ MORE: CONCESSIONAL CONTRIBUTIONS – ATO.GOV.AU 

How to claim a tax deduction for your super contribution

To claim a tax deduction for any concessional personal super contributions, you’ll need to contact your super fund before you lodge your income tax return, and let them know you’re planning to claim a deduction. Then when you submit your tax return, you can claim the deduction on any concessional contributions you’ve made.

AustralianSuper members

Download and complete a notice of intent to claim a tax dedication for personal super contributions (PDF) now. 

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. 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, in bulk.

FIND OUT MORE: SUPER CONTRIBUTION LIMITS (PDF)

 

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 your super has insurances included

Nobody likes to talk about death, or losing their job due to illness, but making sure you could survive without pay for a period of time can bring a sense of security to any business owner. A simple review of your insurances – Total and Permanent Disablement (TPD) cover, Income Protection, and Death cover can ensure you’re correctly insured and prepared for the worst.

It can be good to review your insurances annually, or when major life changes occur such as getting married, having a child or buying a property.

READ MORE: INSURANCE THROUGH AUSTRALIANSUPER

READ MORE ABOUT: HOW TO CONTRIBUTE TO YOUR SUPER

 

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.

If you have a yearly income of less than $53,564 (before tax), and you meet the eligibility criteria, the Government will match 50 cents for every $1 that you add to your super from your after-tax income up to a maximum3. This could mean up to a $500 contribution from the Government per year. Over the years, this can have a positive impact on your super balance4. The co-contribution gets paid directly into your super account after you’ve lodged your tax return for that year, proving your income.     

READ MORE: MAKING AFTER-TAX CONTRIBUTIONS


Government super contribution income thresholds  

Your total income* Your contribution Co-contribution
$38,564 $1,000 $500
$44,564 $600 $300
$50,564 $200 $100
$53,564 Any amount $0
Source: ATO – Co-contribution income thresholds
*Assessable income, plus reportable employer super contributions, plus reportable fringe benefits for the 2019/20 financial year.

 

Business owners with employees

Understand your super guarantee obligations to any employees 

If your business employs other people, you 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.

The rate of SG has been 9.5% per annum since 1 July 2014. From July 2021, the superannuation guarantee 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.

READ MORE: THE SUPERANUATION GUARANTEE

 

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.

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 you have considered them as 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.       

FIND OUT MORE: SUPER RULES FOR EMPLOYERS

 

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.

 

FIND AND CONSOLIDATE YOUR SUPER NOW

 

Sources:
1. ASFA – Superannuation balances of the self-employed
2. ATO – Working out if you have to pay super
3. ATO – Super co-contribution


This information is general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 

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