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Am I self-employed?
If you don’t have an employer making super contributions on your behalf, you are self-employed. Even if you do have an employer paying superannuation, but you receive less than 10% of your total assessable income as salary, wages or fringe benefits then you are also considered to be ‘substantially self-employed’.
As self-employed, how do I contribute to super?
You have two options, you can either set up and contribute to your own fund or contribute to a "public-offer" fund which is a fund that accepts contributions from the public in general.
Which fund is for me?
There are a large number of "public-offer" funds, which means they accept contributions from the public in general. They are broadly classified as "industry" and "retail" funds:
Industry funds have traditionally been open to people working in a particular industry or under a specific industrial award, although most of them now are genuinely ‘public offer’ in that they allow anyone to join. Industry funds are generally non-profit organisations and maintain that their fee structures are lower.
Retail funds are offered by financial institutions and insurance companies and cater for people who want to invest in a fund managed by professionals in order to save for their retirement. These funds add to your savings (or should do so) but also generate revenue and profit for the financial institutions. You are buying the investment expertise and being charged a commission.
Various organisations provide public rankings of super funds and you can utilise their data to compare the merits of the huge number of superannuation funds on offer. Here are the websites of these ranking agencies:
Treat each as a tool in your kit to help with your research and evaluation.
What to consider when choosing a super fund
When you are choosing which fund to use, you should think about:
• The administration fees;
• The investment performance and the institution's reputation;
• Insurance cover options etc.
If you are uncertain of the way forward, you should speak to a "fee-for-service" financial adviser to determine which products best suit your needs.
What happens to my money?
Depending on the nature of the fund your money will be invested in companies on the stock exchange, fixed interest securities such as bonds, property or cash.
What are the tax advantages?
Most self-employed people can claim a full tax deduction for contributions they make to their super until age 75. Once you reach age 65 though, you need to meet a work or ‘gainful employment’ test to continue contributing, and contributions are generally not allowed after you reach age 75. You can contribute up to $25,000 a year into super (($35,000 from the 2013/14 year for the over-60s) and claim a tax deduction for the lot. So if your income from self-employment is $100,000 and you claim a tax deduction for a $20,000 contribution into super, you only pay income tax on $80,000. Your fund also pays a contribution tax of 15% of your contributions.
Self-employed people can also benefit from the government’s co-contribution scheme. The Australian Tax Office makes what is called a co-contribution (matching your own contribution at the rate of 50 cents for every dollar) of up to $500 a year providing you earn less than $33,516 in the 2013/14 tax year. This co-contribution reduces if your income is above $33,516 and cuts out altogether at an income level of $48,516 pa. The co-contribution is only available if you receive 10% or more of your total income from eligible employment. Eligible employment means any employment which results in you being treated as an employee for superannuation guarantee purposes.
Are there any other options?
You can also do-it-yourself by setting up, or having set up for you, a self-managed fund which gives you complete flexibility and independence. But there are some drawbacks and risks. Not such a bad choice if you feel confident in your accounting and investing abilities and have or contemplate having a fund of a value in excess of $500,000. See the next section of our website SMSF set-up.
Morningstar