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Getting ahead with your superannuation when you’re self-employed

07 April 2017

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Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

If you’re self-employed in Australia, there’s a good chance your retirement savings aren’t all they could be. In fact, research from the Association of Superannuation Funds of Australia (AFSA) found in the run up to retirement, the self-employed have around half the superannuation of employees.

We talked to CERTIFIED FINANCIAL PLANNER® professional Dacian Moses, financial planner at Waterfall Way Associates, about strategies for the self-employed to get on track with their super contributions.

In your experience what are the issues self-employed people face when it comes to making voluntary contributions to super?

Whether you’re self-employed or not, if you plan to make voluntary super contributions, it’s important to look at your whole financial situation and be clear about all your goals and commitments. When you have a large amount of debt, or substantial family expenses like school fees, then super may not be the most important priority for your income and budget.

Assuming you want to put a plan in place to address your retirement savings, you need to get past the two main hurdles – cash flow and complexity. Whether you’re operating as a sole trader or an incorporated business, you’re going to have significant ongoing demands on your cash flow. Meeting quarterly BAS and company tax obligations, paying wages, withholding tax and super for your staff, and paying creditors, can all put pressure on your cash flow from month to month. So it’s no wonder owners are often last in line when it comes to drawing an income from their business.

Despite the government’s best efforts to make it less complex, getting your super in shape is far from simple. You need to choose a fund and select your investment options within that fund. Then there are different types of contributions you can make – concessional and non-concessional, personal or company. It’s often the case that people want to contribute to super over other types of investments because it’s more tax effective. After all, with super you’re saving and investing money that you won’t be able to draw on until retirement so you’re sacrificing access to your money in favour of saving tax. But making the most of these tax incentives can be a challenge when there are so many decisions to make.

As a planner, how can you help them overcome these obstacles?

Looking at the cash flow issue first, your planner can work with your accountant to build a stable and predictable savings capacity from your business income. While that might sound like a simple enough equation to figure out, the business income as reported on your BAS, P&L and balance sheet can be quite a different story from what’s actually available in your business bank accounts. Your accountant is familiar with your business and the industry you’re dealing with, so they have an essential role to play in finding an effective way to draw a personal income from the business without compromising on the capital it needs to operate and grow.

With your income stream established, a planner can work with you to allocate that income for debt reduction, and to pay living expenses, insurance and super based on your personal situation and goals. It’s usually a good idea to set up automated payments for all these outgoings, including your super contributions.

Your planner will also be across all your super commitments to make sure contributions are structured and paid to meet your saving and investment targets and to maximise tax savings. They’ll also review your super strategy on a regular basis, taking into account new legislation and any changes to your personal or business finances. By having a financial planner manage and monitor your super, you get the benefit of a tax-effective retirement savings plan without having to take time out from the important work of running a successful business.   

Are there any points in the lifecycle of a business where you see clear opportunities to boost your super contributions?

After working hard to build the value in your business, selling it can be your best opportunity to realise that value as personal wealth. As with your other super arrangements, your planner and accountant can work together to determine how super contributions can be part of a strategy to limit the tax you’ll pay on proceeds from selling your business.

Whether you’re a business owner or a salaried employee, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on your super arrangements and planning for a comfortable retirement.