|
Welcome to the first edition of SuperNews.
Each month we will provide a short newsletter focused on topics to stimulate thinking about your superannuation and, if you operate a self managed fund, assist you in your operation and planning of the fund. It is not an advice newsletter, rather, a brief summary to encourage dialogue with your adviser.
Superannuation for the Self Employed Under Age 65
If you are a sole trader, partner in a partnership, or a trustee of a trust, you are considered “self-employed” and do not receive superannuation guarantee payments. Many small business owners re-invest their money into their business to fund their retirement. However, in doing this, their retirement is totally dependent on the performance of the business.
Investing in superannuation allows small business owners more diversity in investment and keeps retirement funds separate from the business, assisting in creating greater security for your retirement monies. Self-employed people are also allowed to claim a tax deduction for concessional contributions, therefore providing a very tax effective way of investing.
Consider the following case study:
John is 45 years old and is a sole trader earning $130,000 pa. He makes personal concessional contributions to his superannuation fund of $50,000 each financial year (this is the maximum allowed for people under 50 years old).
|
|
Before
Contribution |
After
Contribution |
|
Gross income |
$130,000 |
$130,000 |
|
Tax deduction for contribution |
- |
$50,000 |
|
Taxable income |
$130,000 |
$80,000 |
|
Tax payable (including Medicare levy) |
$41,050 |
$20,300 |
|
Contributions tax 15% |
- |
$7,500 |
|
Total tax payable |
$41,050 |
$ 27,800 |
With this strategy, John has saved $13,250 by contributing $50,000 towards his retirement. |
Investors
The same tax deductions are available for investors under age 65 provided that in the year of income, employment income is less than 10% of assessable income.
Please discuss with your adviser if you have high dividend income or capital gains in a year and possibly have the option to salary sacrifice your employment income.
Self Managed Super Funds
SMSFs are a popular choice for superannuation investment in Australia, with over $234b in assets. A SMSF is one where the members of the fund (you and perhaps others, but no more than four) are also the trustees. Essentially, you are responsible for the investment and asset mix of your superannuation fund. Whilst this option gives you much more control over your funds, it also carries a lot more responsibility and obligation .
Contribution Limits
|
Deductible Contributions |
Non-Concessional Contributions (inc Undeducted Contributions) |
|
A cap of $50,000 per year for all ages (with a five year transitional cap of $100,000 per year for people aged 50 and over.)
Work test applies for age 65 to 75. |
A cap of $150,000 a year.
Contributions totalling up to $450,000 in one year are allowed for those under 65 by bringing forward future entitlements to two years worth of contributions. |
|
