18 June 2013
Superannuation for Sole Traders and Partnerships
If you're self-employed - that is, a sole trader or a partner in a partnership - you are not obliged to make super contributions to a super fund for yourself. However, you may want to consider super as a way of saving for your retirement. If you're self-employed, you may:
be able to claim a full tax deduction for your super contributions
be eligible for the Low Income Super Contribution (LISC)
be eligible for the super co-contribution
Low Income Super Contribution (LISC)
If your adjusted taxable income is less than $37,000 the government will also pay an extra 15% of your super contribution into your super fund. You will need to make sure that the super fund has your Tax File Number and that at least 10% of your income comes from employment or your business, or a combination of both.
If you don’t claim a tax deduction for your super contributions, you can apply for the super co-contribution instead. You can only claim for one or the other, not both. Unlike claiming the super contribution as a tax deduction, the co-contribution will be paid directly into the super fund. Please note that the government has currently proposed the following changes to the co-contribution:
the maximum co-contribution entitlement will be $500
the matching rate to be reduced to 50%
the lower income threshold will remain $31,920
the higher income threshold will be reduced to $46,920.
Should I claim my super contributions as a tax deduction or as a super co-contribution?
The answer depends on your taxable income and the amount of contribution made to your super fund.
For example, let’s say you make a $1000 contribution to your super.
If your taxable income is more than $46920, your only option is to claim it as a tax deduction.
If your taxable income is less than $31920, you may be better off claiming the co-contribution as you would receive $500 extra in your super fund, compared to only approximately $150 benefit of claiming it as a tax deduction (excluding medicare levy).
If your taxable income is between $31920 and $46920, or if you have made a super contribution of more than $1000, you would be best to contact us to discuss which option would be most beneficial for you.