You don’t have to pay yourself super, but when you retire, you might be glad you did.
You can make regular or lump sum payments can usually claim a tax deduction on contributions and may be able to save tax.
Why pay yourself super
There are advantages to contributing to super:
- You save for your retirement.
- You can claim a tax deduction for super contributions.
- Super contributions are taxed at 15%, so you may save tax depending on your situation.
- Super investments usually get better returns than bank savings accounts, so your savings will grow faster.
How to pay yourself super
If you already have a super fund, check that you can make contributions when you’re self-employed. You’ll need to give your fund your tax file number (TFN) so they can accept contributions.
Check if moving from employee to self-employed affects the insurance cover through your super. Insurance terms and conditions vary from fund to fund.
If you don’t have a fund, see the article choosing a super fund (https://moneysmart.gov.au/how-superworks/choosing-a-super-fund) or come talk to us.
Transfer a regular amount or a lump sum
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.
- Income from business revenue — transfer a lump sum when you have enough cash flow.
Tax deductions for super contributions
You can claim a tax deduction for contributions you make from your after-tax income (known as personal super contributions).
To claim a tax deduction, you need to send a ‘Notice of intent to claim’ form to your super fund and receive an acknowledgement from your fund.
See the article claiming deductions for personal super contributions (https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Claimingdeductions-for-personal-supercontributions/) on the Australian Taxation Office (ATO) website for detailed information.
Always confirm the details of any super contributions with your accountant or tax agent.
How much to contribute to super
As a guide, employers contribute at least 10% of an employee’s earnings to super.
There are limits to how much you can contribute each financial year:
- up to $27,500 in concessional contributions (from your pre-tax income, for which you can claim a deduction), and
- up to $110,000 in non-concessional contributions (from your after-tax income)
If you’re on a low income, you may be eligible for government super contributions, see the article super contributions (https://moneysmart.gov.au/grow-yoursuper/super-contributions).
To find out more, talk to us today!