Sole trader superannuation: what you need to know

Understanding sole trader superannuation

Sole trader superannuation refers to the contributions made to a superannuation fund by people who are self-employed. It is essential for building a retirement nest egg, as sole traders do not have an employer to contribute on their behalf.

By actively contributing to your super, you can build upon your financial security for the future, while benefiting from potential tax advantages.

How sole traders can contribute to their superannuation

There are several ways to make contributions as a sole trader, each with its own benefits and considerations. Learn about each option and select the right choice for your individual circumstances.

1. Personal contributions

• You can make voluntary personal contributions, opens in new window to your superannuation fund. These contributions can be made at any time and in any amount, allowing you to boost your retirement savings.
• If you’re having issues determining how frequently you can make contributions due to cash flow issues, sole trader business loans are a popular option worth considering.

2. Salary sacrifice

This option is much more common for employees, however sole traders can also arrange for their income to be directed into superannuation before tax. Salary sacrificing also reduces your taxable income, opens in new window while increasing your super balance.

3. Spouse contributions

If you have a partner with their own super fund, you can contribute on their behalf, which may also provide additional tax benefits. This strategy is useful if one partner earns significantly less than the other.

4. Government co-contributions

If you have an income that is below a particular threshold, you may be eligible for a government co-contribution, opens in new window when making personal super contributions to your fund. This effectively helps to boost your retirement savings.

5. One-off contributions

Sole traders can make one-off contributions, especially when cash flow allows – for example, once a successful project has been completed, or during a profitable quarter.

With flexible repayment options to help you manage cash flow more efficiently, NAB offers a range of business loans for sole traders to assist in making regular super contributions without the additional financial strain. Remember to have the required documents for sole traders (PDF, 144KB), opens in new window prepared before getting started.

Managing your superannuation contributions

The effective management of your superannuation contributions is key to building a secure financial future as a sole trader. Develop a clear strategy for making regular contributions and stay informed about any rules or limit changes.

Let’s look at a few of the most commonly questions asked when it comes to understanding how sole traders can manage their superannuation contributions.

What is the super cap for sole traders?

The super cap, also referred to as the concessional contributions cap, is the maximum amount that you can contribute to your superannuation account at a reduced tax rate. According to the ATO, for the 2023-24 financial year, the cap was set at $27,500, however from 1 July 2024, the super cap will be set at $30,000, opens in new window.

How much super should I pay myself as a sole trader?

If you’re wondering how much to pay yourself as a sole trader, the general rule is that you should aim to contribute at least 10.5% of your income to superannuation. However, the actual amount can be adjusted based on your financial situation and retirement goals.

Strategies for managing and increasing your contributions

Keep the follow sole trader superannuation strategies in mind:

• Ensure you have a relevant sole trader bank account set up and separated from your personal account.
• Consider setting up regular, automatic contributions to your superannuation fund from this account to ensure consistency.
• Explore options like salary sacrificing or making personal contributions to maximise your retirement savings, and use the ATO’s calculator for super co-contribution, opens in new window to determine eligibility requirements.
• Remember to always keep track of your total superannuation balance, opens in new window.

Superannuation obligations for sole traders

As a sole trader, you are legally required by the ATO to meet specific superannuation obligations before you start operating, opens in new window. Failure to meet these obligations may result in penalties and missed opportunities for tax benefits.

How to set up superannuation as a sole trader

To set up superannuation as a sole trader, consider whether you need a business bank account, opens in new window, then start by choosing a super fund that meets your needs, or set up a self-managed super fund.

Complete the necessary application processes. Remember to keep accurate records of your contributions to comply with the ATO’s requirements for sole traders.

Some of these requirements may include:

• Paying tax at the individual income tax rate set by the ATO, opens in new window – this includes the total of your combined income, as the ATO considers no separation between you and your business.
• Registering for Goods and Services Tax (GST), opens in new window, if your annual turnover exceeds $75,000.
• Lodging a Business Activity Statement (BAS), opens in new window once you have registered for GST and your annual turnovers exceeds $75,000.
• Pay As You Go (PAYG) withholding, opens in new window if you decide to hire any employees.

Tax considerations for sole trader superannuation

Sole traders pay tax at a different rate, opens in new window to companies. Understanding the tax implications related to superannuation is essential for sole traders because contributions made to your super can be tax-deductible, which may reduce your taxable income.

How to claim tax deductions on super contributions

Wondering how to pay tax as a sole trader and claim tax deductions? To claim tax-deductions on your super contributions, opens in new window, make sure that you meet the ATO’s eligibility criteria and maintain the required documentation. This also involves submitting your tax deduction notice to your super fund to maximise deductions.

Common mistakes sole traders make with superannuation

• Sole traders often overlook their superannuation obligations or fail to make adequate contributions.
• Additionally, some may not understand the importance of keeping detailed records, opens in new window, which can lead to complications at tax time.

Take control of your financial future as a sole trader with NAB

Ready to optimise your financial management as a sole trader? Explore NAB’s range of business banking products and solutions for sole traders and partnerships.

From tailored business accounts and superannuation solutions, to an online bookkeeping platform that automates financial management, we’re here to help at every stage on the way to securing your financial future.