Superannuation Calculator: If you are self-employed or a sole proprietor, you must know that superannuation is as important for you as it is for an employed person.
You are not legally obliged to do so, but doing so will definitely work in your favour only!
It’s important because if you don’t save some money now, you’ll have an empty pocket by the time you are retired. So, you technically don’t have to save for super but when you retire, you’ll be happy that you did this.
You don’t necessarily have to make big payments, you can just pay regularly or make lump sum payments if your cash flow allows it. Also you can claim tax deductions on your contributions. That way you might be able to save tax.
To make sure you are regularly saving for superannuation,you’ll need to know all about superannuation and calculating it.
Superannuation- What is it?
Superannuation is the amount of money which people pay, or save basically, to a special fund in a super account. This is the money they will receive as a pension when they retire from their work.
The minimum mandatory contribution is 11% which is also termed as the “superannuation guarantee”.
You can also contribute more than this minimum rate, but the maximum amount you can pay per year is $27,500. Australia is the 4th largest holder of pension fund assets in the world since Australian invested AU$3.5 trillion invested in these funds as of 30 March 2022.
Why do you Need to Save for Super?
Here are the reasons of why you need to save and pay for super:
- You’ll be able to save for your retirement.
- You can claim tax deductions on your contributions.
- Super contributions give you better returns than saving on bank accounts, so it will help your savings grow better and faster.
- The tax rate on super investments is 15%, so you might save tax depending upon your scenario.
- You will be less dependent on age pension.
How to Manage your Superannuation as Self-employed?
If you are self-employed, there are two ways of making super contributions:
- If you pay yourself in wages, don’t forget to contribute at least 11% of your gross income to your super account.
- If you pay yourself from your business income, you can send a lump sum to the majority of super funds.
Self employed or sole proprietors are subjected to the same minimum and maximum super contributions as regular employees.
What are Contribution Caps?
A “cap” is termed as the maximum amount of contribution you can make to your super account each year. This cap is the same for regular employees as well as for the self-employed ones.
The super contribution cap for the year 2023-2024 is:
- For before tax or concessional contributions cap, the amount is $27,500.
- For after tax or non-concessional contributions cap, the amount is $110,000 per year or $330,000 over a three year time period.
Make sure that you are aware of the contribution caps because if you cross its threshold, you will have to pay a higher tax and extra contribution charges.
Tax Deductions for Super Contributions
Super contributions are taxed at a lower tax rate of 15% whereas your regular income is taxed at 45% depending on your earnings.
Now because you already pay tax on your income before you contribute it to super, and after contributing, it will again be taxed at 15%, therefore you can claim a tax deduction on your super contribution. There are limits to how much you can contribute and claim as tax deduction.
You can claim a tax deduction from your after tax contributions you make.
However, to claim tax deductions, you need to send a ‘Notice of intent to claim a tax deduction’ form with your super contribution before the end of the year. This lets your super fund know that they have to tax your contribution.
How to make Super Contributions in Australia as Self employed?
Paying yourself super is as simple as making online transactions.
You have to log in to your online portal for your super fund to be accessible by your account. Then select ‘make a contribution’ and enter the amount you would like to contribute to your super account.
The best idea is to set regular payment dates that suit your income. For instance, a lot of regular employees are paid superannuation by their employers every quarter. So you can also pay quarterly. But again, it depends upon your income, you can choose to pay it twice or even once a year.
To be eligible to make super contributions, you need to be above 18 years or even if you are under 18, you need to work for more than 30 hours per week in order to be eligible.
Best Super Funds for Self-employed
There are no particular funds entitled to self employed workers, they are also free to choose any fund that they want to from the public funds.
However, the best super fund for self employed should have the following characteristics in order to be beneficial in the long run:
- Lower fees: All types of super funds charge fees, some less some more. Fees is either a particular dollar amount or a percentage. Both ways, the lower the fees, the better it is. Also, the less you pay, the bigger you get.
- Insurance: Depending on the line of work you’re in, you’ll have different insurance needs. Also super funds usually have three types of insurance offers for members:
- Life / death cover
- TPD ( Total and permanent disability)
- Income protection
While choosing between these, also look and compare other factors such as rates, the amount of cover or any other factors that might influence you.
- Long-drawn performance: Before choosing a particular super fund, compare their performances. Choose the fund that consistently has a good long drawn performance over the past 5-10 years.
How to Calculate Superannuation: Superannuation Calculator Australia
Superannuation is calculated by multiplying your total income or wages by 11%. This is also known as superannuation guarantee.
Even though super is based on Ordinary Time Earnings, so overtime is excluded, however some bonuses and allowances are included. But overtime payments or hours are not included.
Here’s a small easy example of calculating superannuation:
If you earn $60,000 and a bonus of $3000, so your superannuation will be:
$63,000 x 11%= $6,930
But this is a very basic example. Whereas in reality, while calculating superannuation, there are many calculations at the back end. So, to be more precise and accurate, there are tools such as superannuation calculators. With their user friendly interface and reliability, this is the best tool out there.
With very little details, these calculators can give you big calculations within seconds.So they are time savers as well as free of cost. You can use them at any minute of the day and can get your answer within a second. They also save you from the expenses of tax accountants.
If you’re looking for the best superannuation calculator in Australia, stop your search right away and visit https://mytaxdaily.com.au/ !
This calculator is consistently updated with the rules of the ATO. You just have to enter your income and it will give you all the details that you need. This tool is designed to help Australians with all their tax issues and calculate their superannuation for each period.
We hope this article has helped you with your superannuation and retirement plannings, so that you can still enjoy life when you’re old!