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As the owner of a small business, it’s all too common to be swept up in the immediate challenges of your venture – pursuing sales, generating leads, and expanding your enterprise. Often, those who are self-employed focus on reinvesting their earnings into the business, rather than saving in superannuation. However, there are significant advantages to allocating a portion of your income to superannuation.
Currently, Australian self-employed individuals are not obliged to contribute to superannuation. The Australian Tax Office (ATO) statistics reveal that self-employed individuals, who represent around 10% of the workforce, contributed merely 5% to the total superannuation funds in 2014-15(1). Delving further, less than 10% of self-employed Australians chose to contribute to superannuation in a tax-effective manner in that year.
The ATO provides specific criteria to identify a self-employed person:
For additional details, visit the ATO website.
While investing all your earnings back into the business might seem appealing, not every business yields a significant return upon retirement. Many self-employed individuals and businesses depend exclusively on their personal labour, without substantial business assets as a fallback. Superannuation serves as an effective tool for retirement planning in these situations.
Contributing to superannuation aids in creating a retirement fund, ensuring financial security and a source of income post-retirement. Regularly saving a modest amount in superannuation can accumulate financial stability over time, allowing you to concentrate on business growth with the assurance of a developing income source.
Here’s an important aspect: self-employed individuals may be eligible for a complete tax deduction on super contributions.
If you’re self-employed, you can contribute up to $27,500 annually for the 2023-24 financial year. These contributions are taxed at a concessional rate of 15%, which is lower than marginal tax rates. Hence, these contributions not only enjoy a lower tax rate but can also be claimed as a tax deduction.
To claim a tax deduction, remember:
Superannuation is an efficient way to accumulate wealth due to its tax benefits. Over time, your contributions experience compounding growth, earning returns on both the initial amounts and the generated earnings. Starting early and consistently contributing, even small amounts, can significantly enhance your retirement savings.
Many self-employed individuals regard their business as their retirement plan. However, by contributing to a tax-effective superannuation environment and adjusting investment strategies, you can diversify your investments, minimise risk, and simultaneously prepare for retirement.
Managing superannuation as a self-employed person is straightforward:
With the various tax benefits, flexibility in contribution size and frequency, and the advantage of having an additional income source for retirement, superannuation contributions are a wise choice for self-employed individuals. To begin, consult your financial adviser.
The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs.