The Budget, small business and super

Tax breaks may be welcome news for small business owners in the short term but there's one thing self-employed workers can already do so they're not short-changed in retirement.

Most notably, small enterprises will be able to claim an immediate tax break on new equipment costing up to $20,000—a rise from the $1,000 threshold in place prior to the Budget. This $20,000 limit applies to each individual item and small businesses can apply this $20,000 rule to as many individual items as they want.

Small companies with annual turnover below $2 million will also benefit from a reduction in the tax rate from 30% to 28.5%. Unincorporated small businesses will receive a tax cut of 5% from 1 July 2015.

It’s welcome news for the small business sector. But there is one thing self-employed workers can already do that provides tax savings today while giving them a valuable benefit in the future—and that’s growing their super.

Without employer-paid super contributions, many small business owners are short-changed in retirement.

Figures from the Association of Superannuation Funds of Australia (ASFA) show the average self-employed Australian retires with around $120,000 in super, compared to $180,000 for wage and salary earners.

Worryingly, over 250,000 self-employed people have no superannuation at all.

Sure, some business owners will be able to sell their business to fund retirement. But plenty won’t. In many cases the value of a small business hinges almost entirely on the owner’s personal skills. On retirement, many of these people could find their only real asset is their tools of trade.

The latest Budget measures will hopefully make it easier for business owners to contribute to super—a step that in itself offers generous tax breaks.

Self-employed workers aged under 49 as at 30 June 2014 can claim a tax deduction for super contributions of up to $30,000 in the current tax year. That figure rises to $35,000 for the self employed aged 49 years or over as at 30 June 2014.

You will need to let your super fund know you intend to claim any super contributions as a tax deduction. And if you plan to make a contribution in the current financial year, act quickly as it can take time for funds to process your payment.

Growing your super may not be as exciting as buying, say, a new car or computer for the business. But many of the purchases that qualify for the government’s new $20,000 immediate write off are likely to have a limited lifespan. Being able to claim a tax break for building retirement savings that could support you for many years further down the track still stacks up as a very good deal.

If you'd like to find out more about opportunities you may have to be better off today and tomorrow, call us on 131 267 or find a financial adviser.


Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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