If you are self employed, you are not required to put money into superannuation, meaning you have many choices in how you save for your retirement. Unfortunately, this flexibility also means many self-employed persons neglect to put enough money away for their ‘golden years’.
So it’s handy to know that if you run your own business, you can claim a tax deduction on super contributions. Superannuation is a tax effective means of saving for retirement because contributions and capital gains are taxed at a lower rate than they would generally be outside of super. Once you have reached the required retirement age, your super benefits can also be withdrawn tax free.
Most self employed can claim a full tax deduction on contributions to super up until they turn 75 years old.
Tax break
There are two types of contributions that can be made to super: concessional and non-concessional. If you want to claim a tax deduction, you can make a concessional contribution up to a maximum of $25,000 (or $50,000 if you are aged over 50). Breaching this cap will result in unfavourable tax rates on the excess amount.
You can make your contribution to the super fund of your choice, however, many self employed people or small business owners are attracted to self-managed superannuation funds (SMSFs) because they often like to have greater control of their investments.
For some, there are other benefits of running an SMSF, such as the ability to have the super fund own the business real property used in the running of the business, meaning all rental income and capital gains are in many circumstances taxed at a lower rate. Some States also provide stamp duty concessions to SMSFs that purchase business real property.
To find out more about the making super contributions and the benefits of DIY super, please read:
Or, if you’d like to stay up-to-date with the latest investment advice, education and information for SMSFs, take a no-obligation 21-day free trial of the Switzer Super Report, a newsletter and website dedicated to helping trustees grow their DIY super.
Important information:Â This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.
