First Year as a Sole Trader - Need OzBargain Advice on Super (Btw I Am Getting Accountant)


I just want to start by saying I will be getting an accountant to help out, but just want to try to understand something first at a very high level (please go easy on me)

It's my first year as a sole trader, and I have paid $8000 into super already.

If I made $58,000 (gross income) this year and have $30,000 (in expenses)

which leaves me with a taxable income of $28,000

I have some capacity to put more earn more money this financial year and could potentially put that into super.

If I earned n extra $20,000 taking my taxable income to $48,000

If I was to put that extra $19,500 into super

Would that bring my taxable income down to $28,500?

I don't quite understand how the different rates work for super and will be getting more guidance on that from my accountant.



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  • +1

    The accountant will sort you out but super contributions you make will be a deduction to you/business expense.

    There's rules about how much you can put in, but that's basically it. Just keep in mind you're probably locking that cash away in super for a long time.

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    • -2

      You can withdraw at 60 currently. You might have a huge super balance which you can use to finally pay off or service the mortgage. So it's not like you can leverage that asset. Definitely financial advice.

      • +3

        To be honest what usually happens for sole traders is they don't do super contributions cause it's not required and
        A) they think the money is better spent invested in the business/mortgage/hot property market/building up the family trust/assets
        B) they think the money is better spent on stuff they want - car, clothes, tech, holidays, bargains!
        - and retire with low super balance

        A) might be ok depending if those assets did well or not but b) might lead you to a frugal retirement

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    Wait. I mean Ok.

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    Go talk to an accountant. You shouldn't be just dumping excess cash out of your business into your super like that to claim as a business expense. It becomes personal income that needs a notice to your super fund on the extra contributions.

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    If I was to put that extra $19,500 into super
    Would that bring my taxable income down to $28,500?

    Yes, you can contribute up to $27,500 per year.

    Don't forget those contributions will get taxed 15% going into the fund….

    • Yes, you can contribute up to $27,500 per year.

      Plus 5 years of carry over (unused contributions, those years are $25k)

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    R U OK

  • If I earned n extra $20,000 t

    earn 20k in <2.5 weeks damn son thats not bad for a sole operator

    • +4

      Lettuce importer most likely…

      • I am a big fan of kfc moving to cabbage actually. Taste and texture was pretty good.

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    OP confusing us with facebook.

    • +5

      OP confusing us with an Accounting firm.

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    Yes you can pay super into your super fund to reduce your taxable income (the super can be taxed concessionally at 15% by the fund up to a certain limit). However, there might not be much tax benefit if your marginal tax rate is low.

    However, I feel like you are trying to reduce your taxable income for a particular reason, and just moving the money into super may not help. For example, many government payments or taxes will take into account your personal super contribution in the income test (ie. your family medicare levy surcharge liability will take into account your personal super contributions).

  • Get an accountant and go from there, you'll have lots to discuss and sort through.

    • +2

      He has an accountant. OP just wants a second, less qualified opinion.

  • Do you pay GST? That $78k income could become $70909 as your real income and $7091 owed to Gov as GST.

  • Another thing worth noting you can top up your super beyond the $27,500 if you haven't reached the cap in the previous year(s). Also in the same token, depends on the forward looking of your income, it could be beneficial to put in less than $27.5K this year and top up the remaining portion in next FY(s). Def have that chat with your accountant.

  • Sounds like something you should ask your accountant when you get one

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    I'm a sole trader and never put a cent in super, rather put that $ towards my own shares which I have control over. I know the tax breaks of super, but I don't earn a big income and would rather have the control than lock my money away.

    • Yeah, I would expect the OP to get legal/financial advice as to this.

      I'm aware that superannuation is not a legal obligation anyway. At least that is what my solicitor states from a legal standpoint.

  • Putting extra money into super is for oldies that are close to retirement

    My personal opinion is to invest but put nothing in super (im youngish and a sole trader).

    Money is locked away for too long and ripe for getting raided by the government at some point.

    • On the contrary, I would think super is one of the best investment options for a young person, because it's meant to be a long term passive investment. For a properly run super fund its performance should be equals or more than that of a balanced index fund, and over the 10, 15, 20 years horizons, very few (if not no one) passive investment options can beat a balanced index fund.

      The government actually puts a cap on how much a person can put into his/her super account before incur extra taxes. That gotta say something about the attractiveness of the super system.

      Not sure how a government can raid your super, it's your money in an account under your name. Best the government can try to do is dictating how much tax you have to pay on super contributions and how much tax on the returns of the super investment. I haven't seen or can see how the government can actually go in and reduce the balance of your super account.

      For a person that's near retirement, the fluctuation in the market at any given point in time would means they are sitting ducks. There's frankly little they can do to hedge their bets because they haven't got that long left to ride it out.

      • Anyone can invest into an index fund at any time to get those kind of returns.
        The only reason to put money into super is for tax incentives.
        But you also have to factor in opportunity cost (which will be higher for younger people).

        Lets ignore the actual roi from investments for a second.

        Do super tax incentives outweigh business tax incentives and opportunity cost?

        • No financial advice, but not that hard to work out. Say your/your company(ies) net profit is $100 in one year, that's the amount you pay tax on.

          Depending on the type of business, full enterprise type is looking at 25% tax rate on that $100. Personal services type translating back to personal marginal rate around ~30%. But for investment under personal approach you have 50% CGT discount for investment held more than 12mths, practically reduce the tax rate to ~15%.

          Super tax rate is 15%.

          So for the same amount of profit, 12mths old personal investment or super gives you similarly best tax rate.

          However, using personal approach, you would have to use your disposable income as your capital, which has already been taxed at ~30%, e.g. if your salary for the year is $130, after tax, you only have $100 left to invest with (not real figure, but grossly simplified)

          Whereas if you invest through super, you can put through the full $130 (up to $27,500) which will be taxed at 15% leaving you $110.5 left for investing.

          That's the tax incentives part.

          Regarding opportunity cost, assuming your personal choice of investment can match that of a super fund or better yet, beat it, without turning investing into your career, then by all means go for it. Plenty tried and failed. Few haven't failed, yet.

          Also if the opportunity cost includes having access to your fund more readily outside of super than inside, most people don't realise they can withdraw some or all of their super under some circumstances (different fees and taxes applies).

          • @tio: Assuming a long term investment either in or out of super will make huge capital gains/compound growth:
            the capital gain outside super is taxed at the highest rate less 50%CGT discount - before and after retirement upon sale.
            Whereas the capital gain inside super isn't taxed after retirement upon drawdown (be it lump sum or as a pension) - only 15% on the initial investment is taxed. Income earned in super is taxed at 15%. Investments sold during super attract 30% CGT discount - effectively paying 10%.

            • @MITM: Bugger me, didn't realise that super can also access CGT discount, even better.

              • @tio: Super is way better that personal if you have spare capacity and time, 15% on the way in means you start with ~20% more than average earner in hand. Any income return is only taxed at 15% (capital growth not taxed unless sold, at 10%) and inability to access means compounding is guaranteed. And if you wait until age 60+ to sell any gains can be tax free, not 10% tax.
                Ask any 'oldies' and they will tell you they wished they put more in when younger, time and compounding cant be beaten (einstein was a fan).

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    Just as an aside, a sole trader can make super deductions automatically with Hnry and they take care of literally everything! All you have to do is upload your receipts.

  • Super contributions work better for you the younger you can put them. Having said that extra earnings I make I put on our house loan I was doing salary sacrifice at one stage for my super but in my situation I have decided I want my house paid off as soon as possible.

    I do also make some contributions into my wifes super as she doesn't have much as she was primary carer for our kids at home.

  • Short term - build an emergency buffer in an investment vehicle (eg ETF).
    Medium term - save deposit for house.(as above)
    Long term - put some away for retirement (salary sacrifice or SMSF)
    Do all three from the get go.

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