Self Employed people generally don’t have someone making compulsory contributions into their superannuation account – unless they are employees of their own business, in which case their business will be required to make SG Contributions into their superannuation account just like any other employee at the nominal rate.
So how does a superannuation account of a Self Employed person increase?
They have to make Self Employed Super Contributions – known as Personal Concessional Contributions.
Self Employed Super Contributions
Unlike employees who receive compulsory SG contributions into their account from their employer and also have the ability to salary sacrifice part of their wage into superannuation, Self Employed individuals need to make their own contributions.
How do Self Employed make super contributions?
There are two ways that Self Employed individuals can make Self Employed Super Contributions:
– as a personal Concessional (deductible) Contribution, from their personal bank account; or
– as a Concessional Contribution made from the business account
If you are over the age of 65, you will need to have worked at least 40 hours over a 30 consecutive day period within the same financial year prior to making a contribution. This is known as the Superannuation Work Test. You can read more about the Work Test here.
What is a Concessional Contribution?
A Concessional Contribution is a contribution made to superannuation where a tax deduction has been claimed.
How do Self Employed Claim a Tax Deduction for Super Contributions?
Generally, a superannuation fund will require you to nominate the type of contribution that you are making into the fund at the time of contribution. You may even need to confirm this at the end of the financial year if your superannuation fund sends out a report with all of your contributions for the year and asks you to declare the types of contributions that you would like them to be recorded as.
All personal Concessional Contributions will then be included in your individual income tax return an effectively used to reduce your assessable income (i.e. the total Concessional Contributions will be claimed as a tax deduction).
What are the maximum Concessional Contributions that I can make?
The maximum Concessional Contributions that can be made in any one year are as follows:
| Income Year | General Cap | Cap for those aged 59 or over on 30/6/13 | Cap for those aged 49 or over on 30/6/2014 |
|---|---|---|---|
| 2014-15 | $30 000 | $35 000 | $35 000 |
| 2013-14 | $25 000 | $35 000 | $25 000 |
| 2012-13 | $25 000 | $25 000 | $25 000 |
| 2011-12 | $25 000 | $50 000 | $50 000 |
| 2010-11 | $25 000 | $50 000 | $50 000 |
More information on the Concessional Contribution cap.
Claiming a tax deduction for Self Employed Super Contributions is the Self Employed version of salary sacrificing.
Who can make Personal Concessional Contributions (Self Employed Super Contributions)?
You are classified as being ‘substantially self-employed’ if less than 10% of your assessable income for the financial year, reportable fringe benefits and reportable employer superannuation contributions comes from employment related activities. This is often referred to as the 10% rule.
Therefore, even if you are an employee, you may still be considered substantially self employed.
UPDATE: As of 1 July 2017, employed persons may also be able to make personal Concessional Contributions.
Are Self Employed Super Contributions (Personal Concessional Contributions) Taxable?
Yes, all Concessional Contributions (including but not limited to salary sacrifice contributions, personal concessional contributions and SG contributions) incur Contributions Tax of 15%.
Therefore, if your individual Marginal Tax Rate (MTR) is 15% or below, it may not be worth you making Concessional Contributions into superannuation. However, you may choose to make Non-Concessional Contributions.
Self Employed Super Contributions (Non Concessional)
Self Employed and Employed people are able to make Non-Concessional Contributions too. These are not usually as attractive because the contribution is made with after-tax dollars and does not reduce your personal income tax liability.
What’s the benefit of Non-Concessional Contributions?
Non-Concessional Contributions should not be dismissed. Although they do not provide any immediate reduction in personal tax, they still remain a tax-effective means of saving for retirement. You may even be eligible for a co-contribution – read more about co-contributions here.
More information on the average retirement age in Australia
More information on the retirement age for women
By making Non-Concessional Contributions, you are investing more of your wealth in the tax effective superannuation environment, where all earnings are taxed at a maximum of 15%, as opposed to being taxed at your MTR. The downside is that you are unable to access these savings until you meet a Superannuation Condition of Release.
If you would like anything clarified or have any further questions about Self Employed Super Contributions or any other topics, please do not hesitate to leave a comment.
