A Self-Employed Superannuation Guide

6 December, 20236 December, 2023 Superannuation, Tax

When you’re at the helm of your own business, it’s easy to get caught up in the whirlwind of the present – chasing sales, generating leads, and growing your business. Often, self-employed people prefer reinvesting back into their businesses, hesitant to stash money away in superannuation. Yet, there’s a compelling case for setting aside a slice of your earnings.

The facts don’t lie

At present, self-employed Australians are not required to contribute to superannuation. According to the Australian Tax Office’s (ATO) data, while self-employed people make up about 10% of the workforce, their super contributions account for just 5% of the retirement pie in 2014-15. Dive deeper into the numbers, and fewer than 1 in 10 self-employed Australians opted to make tax-deductible super contributions that same year.

What is ‘self-employed’?

The ATO has clear guidelines on what a self-employed person is:

If you’re self-employed as a sole-trader or in a partnership, you don’t have to pay superannuation to yourself.
If you’re a contractor, it depends on your agreement or working arrangements with the company that you’re doing work for. You may pay your own or you may be eligible for super guarantee contributions from the company. 
You may own the business, but if it’s a company and you’re considered an employee, then you should be paying yourself the superannuation guarantee, which is currently 11%.

For more information see the ATO website.

Why contribute to superannuation?

While it’s tempting to pour every hard-earned dollar back into your business, the reality is that not all businesses come with a pot of gold at the end. Some self-employed people and businesses rely solely on their own labour, with no substantial business assets to lean on. That’s where superannuation can come in, providing a great way to plan for your retirement.

A nest egg for retirement

By contributing to super, you are building a nest egg that will provide you with financial security and income in retirement. Putting a small amount of money into superannuation regularly can provide financial stability over time, allowing you to focus on growing your business knowing that you have another income stream building in the background.

Tax benefits

Here’s a big one: self-employed people may be entitled to a full tax deduction for contributions made to super.

If you’re self-employed, you can make personal contributions up to the annual cap, which is $27,500 per year for the 2023-24 financial year. These contributions are taxed concessionally at 15 per cent, rather than marginal tax rates. So not only are the contributions taxed at a lower rate, self-employed people can also claim a tax deduction on those contributions.

To claim a deduction for personal contributions it’s important to note that:

Contributions need to be made before 30 June to claim them as a tax deduction for that financial year.
You need to notify your fund before claiming a tax deduction, using a specific form. Strict time limits and additional criteria may apply.
The ATO website has more information about claiming a tax deduction for personal contributions as a self-employed person – search ‘Personal super contributions’ on the ATO site.

Compounding

Superannuation remains one of the most tax-effective ways to grow wealth. Over time, your contributions can benefit from compounding growth, as your investments earn returns on both your initial contributions and any earnings generated. Starting early and contributing consistently, even with small amounts, can significantly boost your retirement savings.

Diversification

Many self-employed people see their business as their retirement strategy. But by putting money away into the tax-effective superannuation environment, with investment strategies that can be tweaked over time, you can diversify your investment, reduce risk, AND plan for retirement.

How do I contribute to super if I’m self-employed?

Just because you’re self-employed doesn’t mean super has to be complicated!

First thing is to set up a super account. You can:
– start a new fund with the majority of superannuation providers;
– contribute to an existing fund you may have had when you were an employee; or
– go down the self-managed super fund route.

The next step is to contribute to your super fund. If you receive:
– A wage — set up a regular transfer into super from your before-tax income.
– Income from business revenue — transfer a lump sum when you have enough cash flow.

With various tax benefits, flexibility of contribution size and frequency, and having another source of income for your retirement, if you’re self-employed why wouldn’t you be contributing to super?! If you’d like to get started, talk to your adviser today.

The information provided in this article is general in nature only and does not constitute personal financial advice. 

A different “End of Financial Year Sale”

25 May, 202225 May, 2022 Superannuation, Tax

As the end of financial year fast approaches, there is still time to consider the strategies available to you this June 30 to build your wealth, some of which are discussed below. Making a non-concessional contribution to super (Government Co-contribution Scheme) There is a federal government scheme in which people who earn less than $42,016 pa and make a non-concessional contribution to superannuation (a contribution for which no tax deduction will be claimed), may be eligible to receive a government contribution to their superannuation. Under the scheme, the government will contribute up to $0.50 for each $1.00 you contribute to your super fund up to $500. This entitlement reduces for every dollar earned up to the cut-off annual income of $57,016. For those eligible, this strategy can provide a return on every dollar contributed to super. Making a concessional contribution to super Concessional contributions to superannuation are those contributions made to super for which a tax deduction is being claimed. Using this strategy, most people can claim a tax deduction for contributions they make, up to the maximum limit, which is currently $27,500 p.a. However, this figure includes any Superannuation Guarantee Contributions an employer may make. If you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to make additional concessional contributions for any unused amounts. The federal government allows a 15% Low Income Superannuation Tax Offset of up to $500 on concessional contributions made by individuals with a taxable income of less than $37,000 per year. This strategy can assist you to bolster your retirement savings whilst managing your tax liability prior to retirement. Paying income protection premiums in advance Income protection insurance can pay a monthly benefit of up to 75% of your salary if you are unable to work due to illness or injury, with the premiums being tax deductible. Paying premiums in advance enables you to bring forward the following financial year’s premiums to claim a tax deduction this financial year. This strategy enables you to protect your existing and potential wealth by taking out insurance to cover you against those events which can disrupt even the best laid plans. There are many end of financial year strategies that have tangible benefits to assist your wealth accumulation and protection objectives, so speak to your financial adviser now to discuss and implement. The information provided in this article is general in nature only and does not constitute personal financial advice.

Reviewing your insurance as you get older

7 October, 202017 September, 2021 Updated on17 September, 2021 Insurance, Retirement

So, you are seriously starting to think about your retirement. The kids are finally more independent, the mortgage is less than it was, and the super is more than it was. You look at your monthly bank statements and one particular debit is always there. The insurance premium. You have been paying it diligently for years now, maybe decades. But, for what? You’ve not claimed and ‘gained’ anything so far. At this stage and age, it might be very tempting to cancel your policies and save a few dollars. Before you do, just consider what you could be losing in a future that’s not yet written. It could be hundreds of thousands of dollars. More to the point it could be your home, your lifestyle, or your health – the very thing you are hoping to protect. Statistically you are more likely to claim the older you get. Look at these figures: Type of cover Average age people cancel policy Average age people make a claim Income Protection 45 46 Total & Permanent Disability (TPD) 49 48 Trauma Insurance 44 49 People often don’t realise an insurance policy is not an ‘all or nothing’ concept and there are options available. For example, as you get older and your debts and commitments reduce, so might the level of cover you require. When cover is reduced, so is the premium. Take care though, once a policy is in place it’s easy to reduce the cover but much harder to increase the amount, particularly as you get older. It often only takes a phone call to lower the amount but countless medical tests to increase it or apply again. Before you rush off and reduce your cover, it’s important to tailor the amount of cover to your potentially changing circumstances, and this is where we can help. There are many other options available including requesting a temporary freeze on the premiums; paying annually instead of monthly; moving your cover into your super fund (this is not applicable to all insurance however); or given that your adult children will usually be the ones who will eventually benefit, ask them to share the cost of the premiums! The basic idea of insurance is not to put you in a better position than you were – it’s there to protect what you have. Regardless of what age you are, think twice about cancelling insurance completely. There are always other options available. Ask us for guidance before you make any decisions. The information provided in this article is general in nature only and does not constitute personal financial advice.

EOFY is coming – Have you thought about …

23 June, 202116 June, 2021 Updated on16 June, 2021 Superannuation, Tax

The end of another financial year is looming, and with that may come thoughts about your tax return and how your wealth has tracked throughout the year. Whether you’re nearing retirement, a high-income earner looking to reduce your taxable income, or you’re on a lower income and looking for ways to maximise your super contributions; there are a few things you can consider at tax time. Nearing retirement? Maximise your super contributions If you’re nearing retirement, putting as much money into your superannuation account now is a good way to make sure you build up a healthy nest egg to live off in your golden years. To maximise your super contributions, consider salary sacrificing to put more money into your super account. Salary sacrificed super payments take money out of your pre-tax income. These are called concessional contributions and are taxed at 15%. This rate is lower than most taxpayers’ marginal tax rates, so it can be an excellent way to reduce your taxable income while increasing your superannuation savings. The maximum employer and salary sacrificed contributions that can be made each financial year is $25,000. And remember, if you’re self-employed, your concessional contributions are a tax deduction. Non-concessional contributions of up to $100,000 can also be made each financial year. These contributions come from your after-tax income. Consider a one-off contribution to lower your income tax Let’s say you’re on an income of $170,000. If you haven’t opted to salary sacrifice, your employer contributions to super will be $14,748.86 in the financial year. Therefore, your taxable income will be $155,251.14. To lower your taxable income, you could make a one-off concessional contribution of $10,000. This will reduce your taxable income and still come in under the concessional contribution cap of $25,000. Are you eligible for the Government co-contributions to super? If you earn less than $54,837 per year (20/21 financial year) before tax, you could be eligible for the Government’s co-contribution on after-tax super contributions. Those who earn under the threshold can make an after-tax contribution, and the Government will calculate your co-contribution amount when you submit your tax return. The co-contribution will be deposited directly to your superannuation account. Review your records now Now is the time to check you’ve been keeping good records. Have you got a record of relevant receipts and policy statements for items such as income protection policies you have outside superannuation? Understanding the paperwork you require now to maximise your deductions will save you time when it comes to completing your tax return. If you haven’t got all of your records organised, review your spending throughout the year, identify transactions that may be a tax deduction, and put aside those receipts for tax time. Looking for more help? If you’re looking to maximise your tax return and get ready for a successful financial year ahead, talk to a financial adviser about your options. It doesn’t matter your circumstances; there are options available to help you boost your super savings and get the best tax return possible. The information provided in this article is general in nature only and does not constitute personal financial advice.

How to help your adult child buy their first home

23 March, 20235 April, 2023 Updated on5 April, 2023 Budgeting, Finance, Superannuation

By Robert Goudie This savings strategy is about building a healthy deposit and allowing kids to learn about consistent, regular saving. The strategy will require patience to build a substantial deposit over several years. I also acknowledge that not all parents are able to help their children buy their first home. In my professional life as a personal financial adviser, I have seen many parents assist their children in purchasing their first home. This has often been done with a lump sum. But, unfortunately, this doesn’t have the bonus of any tax efficiency or teaching children a regular savings habit to give them a sense of achievement. Purchasing a home can be difficult, especially as property prices have increased significantly in recent years. For many people, the high cost of housing (and living) has made it difficult to save a deposit for their first home, and even if they can do so, they may not be able to afford the monthly mortgage payments on a home that is within their budget. Building a larger deposit can reduce the debt levels needed to buy their first home or even help them to buy in their preferred area. For parents with the financial capacity and want to help their children save for their first home without handing over a large lump sum, this strategy, combined with some patience, provides an effective way to build the deposit faster. (Please note: I would only recommend parents to do so that have met their own retirement financial goals and have the extra capacity to help out) By subsiding your children’s income regularly, it can allow your child to start salary-sacrificing pre-tax dollars into superannuation – something that they normally couldn’t do without your help. Superannuation salary sacrifice Salary sacrificing is a way for employees in Australia to contribute part of their pre-tax salary into their superannuation account. This can be a tax-effective way to save for retirement because the contributions are taxed at a lower rate than your marginal tax rate. In Australia, the tax rate on contributions made through salary sacrifice is 15%. Contributions are made from your pre-tax salary, which means they are not taxed at the same rate as your income tax. This can be a significant saving if you are on a high marginal tax rate. For example, suppose you are on a marginal tax rate of 45% and were to salary sacrifice $10,000 into your superannuation account. In that case, you will pay $1,500 tax on those contributions (15% of $10,000). However, if you received that $10,000 as salary instead and then contributed it to your superannuation account after tax, you would pay $4,500 in tax (45% of $10,000). In this example, salary sacrificing would save you $3,000 in tax ($4,500 – $1,500). This can be a significant saving, especially over the long term. However, it is important to note that there are limits on the amount you can salary sacrifice into your superannuation account each year. FHSSS In recent years, the Australian Government has implemented the First Home Superannuation Saver Scheme (FHSSS), allowing individuals to save for their first home inside their superannuation account. The policy was designed to help first-time home buyers save for a deposit more quickly by allowing them to make voluntary contributions to their superannuation account, which can then be withdrawn for a home deposit once certain conditions have been met. Under the FHSSS, individuals can apply to withdraw voluntary contributions of up to $15,000 from any one financial year from 2017 onwards, up to a total of $50,000 across all years. If you are in a couple, this is a combined $100,000. Again, these contributions are taxed at a rate of 15%, which is generally lower than an individual’s marginal tax rate. The money saved through the FHSSS can be withdrawn (less the 15% tax) for a home deposit once the individual has held their superannuation account for at least 12 months and met other specific eligibility requirements. Note that superannuation contributions, including contributions made under the FHSSS, must still be within the standard annual caps for concessional super contributions. The FHSSS is one of several government initiatives aimed at helping Australians save for their first home and addresses housing affordability issues in the country. It is available to Australian citizens and permanent residents aged 18 and older who have not previously owned property in Australia and meet additional eligibility requirements. Let’s crunch the numbers Let’s assume a couple make a $14,705 contribution each into superannuation, earning $80,000 each per year, and continue this strategy for a full four years. We will first look at the amount saved in superannuation that can be used for a first home deposit and compare this saving with after-tax dollars outside the superannuation system. After four years of salary sacrificing into superannuation and assuming no investment returns, you would have accumulated a combined $99,994. Compare this to saving after-tax dollars; you would have accumulated $77,054 in comparison. If a couple is lucky enough to have the ability to achieve the above, they would have saved $102,000, which is an extra $23,400 when compared to saving in after-tax dollars. Now let’s look at the amount of income that would need to be provided by those generous parents or grandparents to ensure that the household cash flow remains the same: $15,000 less the marginal tax rate of 34.5% is $9,825 per person or $19,650 for a couple. Other thoughts Of course, many individuals and couples may already be actively saving for their first home deposit. Therefore, they may not need their generous relatives’ full support to achieve the above. Grandparents and parents can also choose to add a lump sum to help them at the time of purchase. It is worth noting that I have seen many clients take significant pleasure in helping their children and seeing the benefit of this assistance whilst they are still alive. However, as mentioned above, any gifting needs to ensure that generous relatives do not compromise…

Six super hacks to retire richer

28 April, 202115 April, 2021 Updated on15 April, 2021 Retirement, Superannuation

While it’s easy to be discouraged by superannuation and fear you will never have enough money saved to stop working, remember even a modest superannuation balance can make a big difference in retirement. For every $100,000 saved in superannuation, you can expect these funds to generate a return of 6%, or $6,000, a year. When this is paid out as a pension, it equates to $500 a month tax-free. Of course, this is doubled if both you and your partner have $100,000 each in super. Depending on your overall financial situation, this can be paid in addition to you receiving a full age pension. Here are six super hacks to help you maximise your super balance: Hack 1. Consolidate your accounts Consolidate all your superannuation accounts into one account best suited to your needs. The Australian Tax Office says some 6 million Australians have multiple super accounts, wasting millions of dollars in duplicated charges. These unnecessary fees will needlessly erode your super balance. Consolidating multiple accounts is easy. Simply log on to the ATO’s website and with one click, choose one account to accept all your funds. This alone could save you thousands of dollars. Hack 2. Review your super contributions Check your employer is contributing the right amount to superannuation from your wages each week. If you believe there is a shortfall, contact the ATO to investigate on your behalf. Hack 3. Take advantage of co-contributions If you earn less than $52,697 a year, consider making additional after-tax super contributions to take advantage of a matching contribution from the government, called a co-contribution. Under this scheme, you can contribute up to $1,000 of after-tax money and receive a maximum co-contribution of $500. This is a 50 % return on your investment. The government will determine how much you are entitled to when you lodge your tax return, and if you are eligible, the government will then pay the co-contribution directly to your fund. You don’t need to do anything more than make the original contribution from after-tax savings. Hack 4. Benefit from spouse contributions Review whether you can benefit from making additional contributions to your partner’s super. If you do make contributions to your partner’s super and they are on a low income or not working, you may be able to claim a tax offset of up to $540 a year. Hack 5. Contribute any long-term savings to super There are rules concerning how much you can contribute to super, and when, but any savings put into superannuation will be held within a tax benign environment. While your fund is in accumulation mode, these assets’ income and capital growth are taxed at 15%, rather than your marginal tax rate. Once you start receiving an income stream, these assets are held within a tax-free environment, making your superannuation your own personal tax haven. Hack 6. Seek professional guidance Of course, there are a raft of rules around superannuation that you must be aware of. To maximise your retirement nest egg, be sure to seek expert advice from a financial adviser or qualified accountant. While it is never too early to start making additional contributions to super, it is also never too late. Even small steps towards the end of your working life can and will make a difference to the way you live in retirement. Contact us today to get started. The information provided in this article is general in nature only and does not constitute personal financial advice.

4 Time-Tested Investment Strategies for Young Investors

21 June, 202315 June, 2023 Updated on15 June, 2023 Education, Finance, Investing

The newest generation of young investors were raised during the Age of Information. Growing up alongside the internet, this generation has been exposed to more information and technological advancement than any generation before them. Young investors have greater access to education around investing, more diverse opportunities for investing, as well as a rise in social media content creators creating communities around building wealth – making this topic much more popular among younger generations. However, the world of investing can still seem intimidating, especially for young adults who are just starting out. While investing does involve risk, there are some time-tested investing strategies that all young investors should adopt to set themselves up for success: 1. Know your financial goals Before investing, it’s essential to know what you’re working towards. Are you saving for a house deposit? Or are you building wealth so that you can retire early? You may want to launch a business. Or start a family? Knowing your financial goals can help determine the best investment strategy for you. Once you have set your goals, you can develop a financial plan for achieving these through investing. 2. Start small and grow your portfolio over time When starting, you might think you don’t have “enough” to begin investing. Starting small and gradually increasing your portfolio over time is a great way to begin. It allows you to “learn the ropes” and build your knowledge and confidence over time, without feeling like you have too much at stake. Getting started sooner rather than later also means you’re taking advantage of the power of compounding returns. Compounding returns happen when you reinvest your investment earnings, allowing your investments to grow over time. The earlier you start investing, the more time your investments have to compound, leading to significant long-term growth. 3. Diversify your investments You might have heard the term ‘Don’t put all your eggs in one basket’, which, in the world of investing, translates to ‘Don’t put all your money in one investment’. Diversifying your investments across different asset types is a key strategy that can be used to lower portfolio risk and provide more stable investment returns. 4. Keep calm… and remember your investment plan Investing should generally be viewed as a long-term strategy, as markets are cyclical and typically go through periods of growth, decline and stagnancy. This means that you will likely experience a market crash at some point in your investing journey, which can be a scary time for investors. It’s important to stay calm and avoid making impulsive investment decisions. In many cases, the best strategy during a market crash is to stay the course and stick to your investment plan. Further, market corrections can often present a great opportunity to invest as markets sell off and asset prices reduce. As Warren Buffet said: “Be fearful when others are greedy and greedy when others are fearful”. While investing may seem daunting at first, incorporating these fundamental strategies will pave the way for success. And a final tip… Seek expert guidance! A financial adviser can help you set achievable financial goals, plan ahead, and making informed investment decisions that will keep you on track towards building lasting wealth. Don’t navigate the financial world alone – let us be your partner in success! The information provided in this article is general in nature only and does not constitute personal financial advice.

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