Superannuation for sole traders and self-employed

As a sole trader, managing your superannuation is in your hands. While not legally required, contributing to your super offers numerous benefits. You have the freedom to choose from any open super fund.

This guide will assist you in selecting the right super fund and understanding the benefits, especially for those self-employed. Once your ready you can also compare some of the top performing super funds.

What's the best super fund for sole traders?

There are no specific funds that are dedicated to self-employed people. Instead, you're free to join any super fund that's open to the public. The best super fund for self-employed workers will have the the following features:

• Low fees. The less you pay your fund in fees, the bigger your balance will be at retirement.
• Good long-term performance. When comparing super fund performance, look for a fund that has consistently achieved high returns over the long term (that is, over the past 5,7 and 10 year periods).
• Insurance options. Depending on what industry you're in, you might have specific insurance needs. Compare the default insurance cover and the additional insurance options when choosing a fund.

If you want a bit more help choosing a fund, you can take a look at Finder's best super fund picks to get you started.

Unless indicated otherwise, the information in the table is based on data provided by SuperRatings Pty Limited ABN 95 100 192 283, Australian Financial Services Licence 311880.

*Past performance data and fee data is for the period ending Jan 2024

Superannuation rules when you're self-employed

If you're an employee, your employer is legally required to pay you super guarantee payments. But if you're self-employed, for example a sole trader, freelancer or contractor, you don't have an employer to pay you super. You're not legally required to pay yourself super, but it's a good idea to do so.

Employers are required to pay employees super at a rate of 11% on their annual earnings. If you're self-employed and choose to pay yourself super, you don't have to meet this same amount and can instead pay yourself less (or more) than this. However, the same contribution limits apply to self-employed workers.

Finder survey: What features are most important to Australians in a super fund?

What are the benefits of paying super for self employed?

According to August 2023 statistics from the Australian Bureau of Statistics, there were approximately one million independent contractors in Australia, constituting 7.5% of the employed population. These statistics underscore the growing trend of self-employment in the country.

Now, let's delve into the advantages of advantages of paying yourself super are:

There are tax benefits to paying yourself super.

There are tax benefits with paying yourself super. Super is taxed at the lower rate of 15% which, depending on what you earn, could be a lot lower than the standard rate of tax you pay. Because of this, you can actually claim tax deductions when you contribute to your super as a self-employed worker.

Note: You also need to remember to lodge a 'notice of intent to claim a tax deduction' form with your super fund before the end of the financial year when you're doing your tax return. This is to ensure your super fund is aware that they need to tax your contributions within the fund.

Save for retirement.

The biggest benefit of paying yourself super is that you're saving for your retirement. Superannuation is designed to ensure Australians have enough money saved to fund their lifestyle when they're no longer earning a regular income. The more you have saved in super, the more comfortable your retirement will be.

You'll be less reliant on the Age Pension.

Superannuation was created so Australians weren't relying on the Age Pension to fund their lifestyle after they've stopped working. The Age Pension is designed as a safety net or back up, but it shouldn't be relied on as an income source and it has strict eligibility criteria. If you pay yourself super while you're self employed, you're less likely to need to apply for the Age Pension.

What are super contribution limits for self-employed?

The same contribution limits apply to self-employed workers that apply to all super fund members.

You can pay yourself up to $27,500 in concessional super contributions each year. Concessional contributions are the contributions you can claim as a tax deduction if you're self employed. This means the money will be taxed in the super fund at the rate of 15% instead of your income tax rate.

If you want to contribute even more to your super you're welcome to do so, however you won't be able to claim any more than the $27,500 as a tax deduction. You can contribute up to an additional $110,000 to your super each year as non-concessional contributions. This means the money will be invested with the rest of your super balance and will benefit from investment returns, but, it'll be taxed at your incomes tax rate.

How to pay yourself super when you're self employed

Paying yourself super is similar to making a standard bank-to-bank transfer online. You'll need to log into your online portal for your super fund to access your account. From here, you can select 'make a contribution' and simply enter how much you'd like to send to your super.

It's a good idea to set regular payment dates that suits you and your business. For example, a lot of Australian businesses pay their employees superannuation once a quarter (once every three months) so this could be a good idea for you too. But depending on your cash flow, you might decide to pay yourself super once every six months or even once a year instead.

Frequently asked questions

• Can a sole trader be eligible for government co-contribution?

  Yes, a sole trader can be eligible for the government co-contribution, provided they meet the income and contribution criteria set by the government. Read more about here.

• What if I have employees do I need to pay their super?

  Yes, if you have employees, as a sole trader, you are required to pay their superannuation contributions according to the Superannuation Guarantee legislation. This is a separate obligation from managing your own super as a self-employed individual.

• Can a sole trader set up a self-managed super fund (SMSF)?

  Yes, a sole trader can set up a self-managed super fund (SMSF). This allows for greater control over investment choices and flexibility in managing retirement savings. However, it also involves additional responsibilities and compliance requirements.