The 2016-17 Federal Budget is being hailed as good for small business, and with 97% of the nation’s businesses employing fewer than 20 people it’s no surprise Canberra is keen to support this sector. But even with a fresh round of sweeteners, statistics confirm self-employed workers often get a raw deal in retirement.
Government figures show what a truly entrepreneurial bunch Australians are. Out of about 2.079 million businesses nationally, around 2.025 million are small ventures - and 1.3 million of these are sole traders who don’t employ any staff at all.
In terms of the latest Federal Budget, from 2016-17 the small business company tax rate will be lowered from 28.5% down to 27.5%. Even better, this tax cut will extend beyond businesses with turnover of less than $2 million to include those with annual turnover below $10 million.
It’s something for small enterprises to look forward to. But there are valuable tax breaks small businesses can take advantage of right now.
These include an immediate write down of newly purchased business assets costing less than $20,000. If your business purchased, say, a work vehicle, a new computer or equipment worth under $20,000 in the current financial year, you may be able to claim an immediate tax deduction instead of depreciating the item over time. Talk to your accountant for more details.
An important benefit small business owners often fail to take advantage of is the tax deduction available for contributions to super.
If you are self-employed you can claim up to $30,000 in pre-tax super contributions this financial year, or up to $35,000 if you’re aged over 49.
This is a significant tax break - and one worth taking advantage of if you have some spare cash.
You see, despite the risks and hard work involved in running your own show, without the benefit of employer-paid super contributions, many self-employed workers could retire with next to nothing in superannuation savings.
Figures from the Association of Super Funds of Australia (ASFA) show almost one in four self-employed people have no superannuation at all compared to only 7.5% of PAYG workers.
This highlights the need for self-employed people to embrace the tax breaks offered by super contributions.
Take a moment to work out how much you can afford to tip into super before 30 June. It doesn’t have to be a king’s ransom – every bit extra helps to grow your retirement nest egg.
The key point is that if it comes down to paying more tax or growing savings for your future, the decision for self-employed workers to make pre-tax super contributions can be a no-brainer.
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.