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If you work for yourself, you're responsible for paying your own superannuation. You don't legally need to pay yourself super, but there are many benefits to doing so. There aren't any specific super funds for self-employed workers, instead you're free to join any open super fund that you'd like to. Our guide below will help explain what to consider when picking a super fund, and once your ready you can also compare some of the top performing super funds.
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 10% 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.
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.
Super is taxed at the lower rate of 15%, unlike your regular income which can be taxed as much as 45% depending on how much you earn. Because you've already paid tax on your money before you add it to your super, and it will later be taxed again at 15% by your super fund, you're entitled to claim these contributions as a tax deduction. However, there are limits as to how much you can contribute to your super and claim as a tax deduction.
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.
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.
Some of the main benefits to paying yourself super are:
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.
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.
Paying yourself super on a consistent basis, for example each month or each quarter, will help you develop and maintain good budgeting habits.
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. We'll outline how this works in more details below.
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:
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.
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Above you say there is no employer contribution for self-employed workers so it’s tax savings that are significant. Is this all that a self-employed worker gets?
So if the worker gets less than the tax threshold each year or thereabouts there is really no point? He is basically just paying tax. Is this it?
Hi Willem,
thanks for the question.
Unfortunately I’m not able to comment on whether or not being self-employed is effective from a tax perspective. It should be known that self-employed workers also get super-related benefits such as the ability to claim a full tax deduction for super contributions, and I’ve emailed you a page from the ATO regarding this.
I hope this helps,
Marc.
Can a self employed person join an industry super fund if so which ones
Hi John,
Thanks for your comment.
Yes, there are industry super fund options for the self-employed.
Industry Superfund is one that offers services to the self-employed. Depending on what sector you’re in, there could be Retail funds and Public sector fund.
Cheers,
Shirley