Do sole traders need to make superannuation contributions?
Sole traders in Australia don't generally need to make super contributions; however, if your business is structured as a company, you may be legally required to pay super for yourself.
In this guide, we'll look at superannuation rules, payment caps and the benefits of personal contributions.
What is superannuation?
Superannuation – often shortened to 'super' – is money saved for retirement through an investment fund. The goal of super is to ensure that Australians have enough money to live comfortably during retirement.
If you're an employee, your employer currently pays 11% of your salary or wages into your chosen super fund. This rate will increase to 12% in 2025. The employer pays your super on top of your wages and generally makes contributions on your behalf as part of their payroll processing.
The government may make additional contributions to your super fund if you're eligible. Depending on the type of fund you choose, your savings are invested in high or low-risk funds, depending on your appetite for risk. When you retire, you can get your superannuation balance back as a lump sum or receive an income stream from it.
Do you need to pay super as a sole trader?
If you're a sole trader or a partner in a partnership, you don't have to pay yourself super, but can choose to. However, if you operate your business as a company and pay yourself a wage, you may be required to pay super guarantee contributions for yourself.
Why pay yourself superannuation?
Paying yourself superannuation does have several advantages, even if it's not legally required.
Save for retirement
Saving for retirement is the key benefit of making super contributions. Even if you think you will have plenty of money from other savings and investments, it's valuable to have a fund that can't be touched until you retire, and that the government may contribute to.
Claim potential tax deductions
Tax deductions on concessional super payments can help self-employed people reduce their tax liability while still receiving the benefit of super contributions. Note that there are contributions caps for both concessional (pre-tax) and non-concessional (after-tax) super contributions. If you exceed these caps, you'll have to pay additional tax.
You might be eligible for government co-contributions
Government co-contributions are designed to help lower-income Australians boost their super savings. If you're a sole trader making personal super contributions, you may be eligible for super co-contributions up to the value of $500 per year. Eligibility depends on your yearly income and whether you've completed your business tax return – check with your tax advisor if you're not sure.
How much superannuation should you pay yourself?
You can pay personal super up to a set contribution cap, depending on the type of contribution you make.
Concessional super contributions
You make concessional super contributions out of your pre-tax income. You can pay up to $27,500 in concessional contributions per year, which will increase to $30,000 in the income year 2024/2025. Payments are taxed at 15%.
Non-concessional super contributions
Non-concessional super contributions are personal contributions that come from your after-tax income. You can make contributions up to a cap of $110,000 per year, with this amount changing to $120,000 in the income year 2024/2025. These contributions are not taxed. However, if you exceed the cap, your excess payments are currently taxed at 47% – the highest marginal tax rate – plus the Medicare levy.
How to pay yourself super
Paying your personal super contributions involves choosing a fund, deciding what you want to contribute, and finding the payment method that suits you.
Research and find a super fund you like
Finding a super fund you like can involve a bit of research. You can use the ATO's YourSuper Comparison tool to look at different funds and their performance, fees and risk levels. Being a government office, the ATO can provide unbiased information about the various funds. You may also look at the kind of investments each fund makes – some people prefer green or ethical investments.
Figure out what to contribute and how often
Work out what to contribute and how often. If you're a sole trader making personal contributions, you can make regular monthly contributions or pay in a lump sum at any time of year. If you know the amount you're likely to make during the year, you can use that to calculate a suitable regular super payment. If you're making concessional contributions from your pre-tax income, remember that you can only contribute up to $27,500 each year.
Set up recurring payments or make manual lump sum payments
Set up recurring payments through direct debit or make manual lump sum payments, depending on your preference and business cashflow.
Sole trader superannuation FAQs
Do sole traders need to pay super to subcontractors?
Sole traders do need to pay super contributions for independent contractors they use in their business if the entirety or majority of their pay is going towards labour costs. You can process the payment through your payroll, whether you're paying the contractor directly or they invoice you for payment.
How much super can you pay tax free?
You can currently contribute up to $110,000 yearly ($120,000 from financial year 2024/25) in non-concessional super contributions, without paying additional tax. These contributions are tax free because they come from income that has already been taxed. Before-tax payments, also called concessional payments, are taxed at 15%.
Is there a cap on how much super you can pay per year?
While there's no strict limit on what you can contribute to your super fund each year, there are caps on the amount you can pay without extra tax liability. The cap is currently $27,500 for before-tax payments and $110,000 for after-tax contributions. This cap will increase from the 2024/25 financial year. Check the Australian Taxation Office for the latest updates.
Super simple, super fast, super clear
Super contributions aren't compulsory for most sole traders, but they have several benefits. If you make personal contributions to your super fund, you're setting aside money for your retirement, reducing your tax payable, and potentially getting additional payments from the government.
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Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.