Superannuation for the self-employed

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May 31 2019
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Superannuation is an efficient way for employees to secure retirement savings through employer contributions. However, self-employed individuals don’t benefit from employer superannuation guarantee (SG) contributions during the accumulation phase.

Who pays superannuation for the self-employed?

Self-employed individuals and sole traders don’t really need to enrol in a super fund, but there is no rule that prevents the self-employed from enrolling in a super and accessing its tax concessions.

If you are self-employed and you decide to open a super account, contributing to super is solely your responsibility.

Self-employed individuals aren’t required to make SG contributions. Rather, you may make regular voluntary concessional and non-concessional contributions to your fund. This means that the amount you contribute may vary depending on your business or labour income.

A good way to ensure that you receive a consistent amount is to separate your business and personal income by paying yourself a fixed wage.

Who pays superannuation for contractors?

Contractors may pay for super themselves or, if their employment set-up is eligible, through their employer. A contractor may be considered as an employee for SG purposes if they are paid “wholly or principally for their labour”.

To be wholly or principally paid for labour, you must:

Be paid wholly or principally for your personal skills and labour
Personally perform the contracted work
Be paid for the hours you work instead of simply to achieve a goal

Furthermore, the contract must directly be between them and their employer. If the contract is coursed through another person or agent, employers have no responsibility to make SG contributions on behalf of the contractor.

If you don’t meet the conditions above, you may have to pay your own super.

Superannuation for employers and small-business owners

If you are self-employed and your business has employees, you will also have to ensure that you pay the superannuation guarantee for your eligible employees.

According to the Superannuation Industry (Supervision) Act 1993 (SISA), the financial year 2019-20 SG rate is 9.5 per cent of your eligible employee’s ordinary time earnings (OTE). It must also be paid on top of the OTE, which means that you can’t take a portion of your employees’ wage to use as SG contribution.

If you fail to remit the correct amount of SG payments, the ATO may require you to pay the super guarantee charge (SGC), which is composed of the following amounts:

The SG shortfall amount
Interest on the shortfall which is currently at 10 per cent
$20 administration fee per employee per quarter

Contributions cap

As long as your contributions don’t exceed the effective contributions cap for the financial year, you may be able to claim a tax deduction on the full amount of your concessional (pre-tax) contributions. You may also be eligible for government co-contributions if you make non-concessional (after-tax) contributions.

As at 1 July 2017, the concessional contributions cap is $25,000 for all ages, while the general non-concessional contributions cap is $100,000. The contributions caps may increase if you are eligible for the carry-forward or bring-forward arrangements.

The carry-forward rule states that you can access your unused concessional contributions cap for a rolling period of five years if your total balance is less than $500,000. This will begin in the 2019-20 financial year.

The bring-forward rule states that members under 65 years old may make additional non-concessional contributions of up to $300,000 over a three-year period. However, the actual cap depends on the total superannuation balance.

Explore Nest Egg to learn more about superannuation.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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