Self-employed

If someone is self-employed as a sole trader or contractor, then they probably don’t have an employer paying their superannuation. But, even though it’s not compulsory for someone to pay their own super if they’re self-employed, it still makes a lot of sense in the long run. Not only are they saving up for a better retirement, but there are also tax benefits while they’re working.

How to make super contributions as a self-employed person

For a person who is self-employed, there are two main ways of paying super: either directly from their income as a salary sacrifice (if they’re giving themselves a regular wage), or through lump sum contributions when cash flow allows, and then claiming a deduction at tax time.

Both methods will see the income paid into super taxed at only 15% rather than their higher regular tax rate.

Contribution calcuatorCompare different ways of contributing

Do sole traders have to pay super?

Sole traders do not have to pay super for themselves under the super guarantee rules, but many smart, forward-thinking sole traders do, in order to boost their retirement income. It’s particularly useful when business is booming, because it not only provides saving for the future but can also help to reduce income tax at the time.

How to pay super as a sole trader?

As a sole trader you pay super by making one or more voluntary contributions to your fund each year and then claiming a tax deduction, or, if you receive a regular income, by setting up salary sacrifice so that some of your wage goes directly to your super. Both enjoy the same tax advantages.

What’s more, even if you salary sacrifice, you can still make additional contributions if you wish – especially if cash flow is good, business is booming or you receive a handy windfall.

Contribution calcuatorCompare different ways of contributing

Do I have to pay super to a sole trader?

Normally super does not have to be paid to a sole trader doing project work. However if the sole trader is also a contractor getting paid by the hour on a regular contract, then the contractor rules apply for super and 11% super guarantee is normally payable.

Do contractors get paid superannuation?

Contractors get paid super by their employer if they earn most of their income from that employer, the work is personally carried out by the contractor, and they’re paid for hours worked rather than for delivering a particular result. Super is paid at the normal rate, currently 11.5%.

Employer contribution calculatorHow much super to pay

Do subcontractors get paid super?

Subcontractors do not get paid super from the client they’re ultimately doing the work for. However, the contractor who hired them might be required to pay super at the guaranteed rate (currently 11.5%) depending on circumstances, especially if the subcontractor is paid by the hour and works almost exclusively for that contractor.

If a contractor doesn’t pay super, a subcontractor can always choose to make their own super payments, and in doing so take advantage of the reduced tax rates on those contributions.

Cost-effective

Super doesn't need to be difficult. Like other working Australians, you can choose a super fund that works best for you. Industry SuperFunds have low fees, a range of investment options, a history of strong investment performance and are run to profit members, not to generate dividends for external shareholders. All Industry SuperFunds can help you through the application process and can inform you of the attractive concessions you may be able to take advantage of, at tax time.

• References
  • Parliament of Australia
  • Business.gov