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2017-07-02 17:29:00Self Employment TaxEnglishGet to grips with building your own super using our handy guide, including super tax implications, possible deductions, and changes from...https://quickbooks.intuit.com/au/resources/au_qrc/uploads/2017/06/Image-3.jpghttps://quickbooks.intuit.com/au/resources/self-employment-tax/super-tax-self-employed/Self-employed Super Contributions during Tax Time | QuickBooks Australia

Self-employed super contributions: What you need to know during tax time

3 min read

If your business structure is a sole trader, or you’re in a partnership, and you don’t have any employees, you’re not obliged to pay super. However, you might decide to make personal contributions to your super fund to make sure you have adequate savings for your retirement. You might even lower your income tax bill at the same time.

So, how do you manage your own super fund, and what are the tax implications? Read our guide, which will come in handy, especially at the end of financial year.

Making super contributions

There are two basic ways to pay yourself super:

  1. From your own business as an eligible employee
  2. From your own after-tax income


First, find out if your super fund has your tax file number (TFN). If it doesn’t, your contributions will be taxed an additional 34%, and your fund won’t be able to accept personal contributions from you. This could also mean you miss out on the super co-contribution [LINK TO SUPER CO-CONTRIBUTIONS ARTICLE] if you’re eligible.

Super co-contribution payment

The co-contribution scheme is a government initiative designed to help low to middle income earners save for retirement. Under the scheme, the government will match any personal contributions you make up to $500 tax-free, unless you have already claimed it as a tax deduction.

So, if your total income is equal to or less than the lower income threshold (which is $36,021 for 2016–17) and you make personal super contributions of $1,000 to an eligible super account, the government will pay the maximum co-contribution of $500.

However, if your total income is between the lower threshold and the higher income threshold (currently $51,021 for 2016–17), your maximum entitlement will reduce for every dollar you earn over the lower threshold. If your income is over the higher threshold, you won’t be eligible for a co-contribution payment. To estimate your super co-contribution entitlement and eligibility, use the ATO’s super co-contributions calculator.

Claiming tax deductions

Currently, if you’re self-employed, you can claim a tax deduction for personal super contributions if no more than 10% of your income is from salary and wages as an employee. From July 1, 2017, this 10% maximum earnings condition will be removed.

For personal super contributions made on or after July 1, you can claim a deduction if:

  • You have written to your fund notifying them of the amount you intend to claim as a deduction, and your fund acknowledges this notification
  • Your age is between 18 and 75 (although if you are aged 65–74 you must satisfy the work test)
  • You made the contribution to a complying super fund or a retirement savings account

Concessional contributions cap changes

Concessional contributions are those paid before tax is applied, and can include personal contributions that you want to claim an income tax deduction for. Any concessional contributions you make are taxed at a concessional rate of 15%.

Any super contributions you claim as a deduction count towards your concessional contributions cap. If your contributions exceed the cap, the amount will be taxed at your marginal tax rate.

In 2016–17, the concessional contributions cap was $35,000 for people aged 49 years and older at the end of the previous financial year, and $30,000 for everyone else.

From July 1, 2017, the concessional contributions cap will be $25,000 for everyone. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), rounded down to the nearest $2,500. So, if you want to make concessional contributions above the new $25,000 cap, it’s a good idea to do it now.

From July 1, 2018, you will be able to ‘carry forward’ any unused amount of your concessional contributions cap, and you can access your unused concessional contributions cap on a rolling basis for five years. After five years, any amounts carried forward that have not been used will expire. The first year you can access unused concessional contributions is 2019–20.

You can only carry forward your unused concessional contributions cap if your total superannuation balance is less than $500,000 at the end of June 30 of the previous financial year.

Act now

There are some things you can do now, regardless of how the changes on July 1 affect you. Check whether you’re eligible for the super co-contribution payment [LINK TO SUPER CO-CONTRIBUTIONS ARTICLE], and find out if your personal contributions are tax deductible.

Talking to a professional advisor about how the changes will affect you – and whether you can maximise your contributions before the new financial year – is also a good idea.

Check out more articles related to self-employment tax here.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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