Running a business can be challenging if you are a sole trader, and keeping your costs low is essential. It’s also important to plan for your future, especially when it comes to retirement. Unfortunately, many self-employed individuals we meet in Cairns haven’t put aside any funds for their retirement.

As your local Cairns accountants, we help you plan for retirement while reducing your tax bill. Saving for retirement can be challenging, especially if you’re self-employed and don’t have a stable income. However, it does come with some tax-saving benefits, as well as ensuring you can enjoy your twilight years, sooner.

Why pay super?

Contributing to your super fund is one of the most effective ways to secure your financial future. Superannuation is a retirement savings plan that has several advantages. Firstly, it helps you save for retirement by regularly setting aside a portion of your income. This ensures that you have sufficient money to cover your expenses when you retire.

Secondly, contributing to your super fund can also give you a tax deduction. Putting money into your fund reduces the amount of money you have to pay taxes on. This is particularly beneficial if you are a high-income earner and want to reduce your tax liability.

Finally, super investments usually have higher returns than bank savings accounts, so your savings can grow more quickly. This can help you build a more significant retirement nest egg to provide a comfortable lifestyle in your golden years.

Claiming tax deductions

Not all contributions are the same. Cairns tradies, freelancers, and solopreneurs should be aware of the options. The two main types of contributions are non-concessional and concessional and different rules apply for each.

Non-concessional contributions

Non-concessional contributions are made with after-tax pay or savings. You can make personal, non-concessional contributions up to $110,000 per year, tax-free or more if you use the carry forward rule (see below). However, note that non-concessional contributions do not qualify for tax deductions.

For low or middle-income earners who choose to make personal non-concessional (after-tax) contributions towards their super fund, the government may provide a co-contribution of up to $500. The government’s co-contribution depends on your income and how much you contribute.

Concessional contributions

Concessional super contributions refer to payments made into your super fund from your pre-tax income. These payments towards your super fund are tax-deductible for self-employed individuals. Note that your super fund taxes concessional super contributions at 15% upon receipt.

From 1 July 2021, the general concessional contributions cap is $27,500 for all individuals regardless of age. For the contribution caps before 1 July 2021, please visit the ATO website.

By putting money into your superannuation using this method, you can lower your tax bill and boost your retirement savings.

Carrying super contributions forward

The concessional contribution cap for the 2023-24 financial year is $27,500. However, if you don’t use the total amount, you don’t lose it. Instead, you can carry forward any unused cap amounts from up to 5 previous financial years, even if you were not a super fund member in those years.

It’s important to note that the oldest available unused cap amounts are carried forward first, so any unused amounts from earlier years will be used up before the more recent ones.

You can use the remaining part of your concessional contribution limit up to 5 years later. This can help you manage your superannuation contributions and taxes effectively.

How to claim a tax deduction for your super contribution

It’s important to work with an accountant to meet your tax obligations when submitting your tax return. As a sole trader, we can help you claim a tax deduction for your super contributions.

We will ensure your super fund receives a ‘Notice of Intent to Claim’ and receive an acknowledgement from your fund.

Seek professional advice

To help you make an informed decision about the best way to maximise your income and minimise your fees, we recommend speaking to our team of qualified accountants in Cairns. Our experts can provide tailored advice based on your unique financial situation and goals, helping you achieve your retirement objectives and enjoy peace of mind in the coming years.