Where’s the union for sole traders? Who’s looking after you, the lonely one, slogging it out, day after day, working all alone?
Well, when it comes to superannuation for sole traders, I’ll tell you who’s looking out for you. No-one! Sole traders are generally not entitled to mandatory superannuation contributions.
But, here’s what you can do about it. We’re going to take a look at how much a self-employed person can contribute to super and how to do it.
Sole Trader Superannuation
As a sole trader, you have no employer. Therefore, you do not receive any mandatory superannuation guarantee (SG) contributions into your super account.
In fact, there is no compulsory requirement for you, as a sole trader, to make any contributions into your super account at all. Given that there is an increasing population of sole traders, one might conclude that this is a major flaw in the future of Australia’s retirement system.
Despite this, as a sole trader, you should still have a superannuation account and should consider making self-employed contributions into it.
Sole Trader Super Contributions
A sole trader does not receive employer contributions and cannot make salary sacrifice contributions, but you are able to make personal concessional contributions and personal non-concessional contributions.
Personal Concessional Contributions
Often referred to as self-employed contributions (but now also available to employees), personal concessional contributions are voluntary contributions made from your bank account into your super fund. You then notify your super fund that you would like to claim a tax deduction for the contribution, wait for confirmation from your super fund and subsequently claim the tax deduction when you complete your individual tax return.
The maximum you can contribute to super as a concessional contribution is generally $27,500 per person, per financial year. However, you may be able to contribute more by utilising the carry-forward unused cap rules. Read more about the concessional contribution cap. Age restrictions may also apply.
The amount you contribute to super as a personal concessional contribution should be determined in conjunction with your adviser or accountant, because, while it will provide you with a tax deduction, concessional contributions also incur contributions tax of 15% (plus an additional 15% for very high income earners). This contribution tax needs to be taken into account when determining the overall tax benefit of such a strategy.
You should speak with your superannuation provider about the specific process to make a personal concessional contribution. It can often be made as a direct debit or BPAY payment into your superannuation account.
Related article: Superannuation Advice: Your Guide to Everything Super
Personal Non-Concessional Contributions
Personal non-concessional contributions are also made by transferring money from your bank account into your super fund. However, with a non-concessional contribution, you do not claim a personal tax deduction in respect of the contribution.
The purpose of making a non-concessional contribution into super is simply to increase the amount of wealth invested within the tax-effective superannuation environment, to receive concessional tax treatment on investment earnings within your super account.
By making a personal non-concessional contribution, you might also be eligible for a co-contribution.
The maximum you can contribute to super as a non-concessional contribution is generally $110,000 per person, per financial year. However, you may be able to contribute more by utilising the bring-forward rule. Age restrictions also apply. Read more about the non-concessional contribution cap.
Whether you decide to make personal concessional or non-concessional contributions to superannuation as a sole trader, you should always remember that the amount contributed to super cannot be accessed until you reach your superannuation preservation age and have retired, or have attained age 65.