Super and Tax Advantages for the Self Employed

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1 YOUR SUPER Freelancers, the self-employed & super. If you are self-employed or a freelance or contract worker Media Super can help you understand your super and tax options, and what you can do to maximise your retirement savings. Superannuation contributions There are a number of ways contributions can be made to your super account to build your retirement savings. If you are an eligible employee, your employer is required to make super contributions on your behalf. If you are self-employed, you can make voluntary personal contributions, and you may be able to claim a tax deduction for these contributions. In the rest of this section we explain the different types of super contributions and how they work. Compulsory employer superannuation guarantee (SG) contributions All employers are required to make SG contributions, currently 9.5% of salary, on behalf of eligible employees. Generally, if you are employed, aged 18 and over, and you earn $450 or more (before tax) in any calendar month, OR if you are under 18 and being paid $450 or more (before tax) in any calendar month and work more than 30 hours in a week, your employer is required to pay SG contributions on your behalf. Employees and some contractors are eligible for SG contributions, however they do not apply to those who are self-employed. Whether or not you are entitled to compulsory employer contributions will depend on your work arrangements. Also, if you work in different kinds of roles during the financial year, you may be eligible for SG contributions for some roles but not others. Characteristics that suggest you are eligible for SG contributions for the role include: > the employer has a right to determine the way your work is performed > the arrangement is for your personal services, that is you are required to perform the work personally and cannot engage another person to perform the work > the employer supplies the tools and equipment and the place of work > you are paid according to the amount of time you work, and your hours are fixed by the employer > you are entitled to annual leave, long service leave and sick leave > pay-as-you-go (PAYG) tax is withheld > the employer is responsible for workers compensation insurance. For more information on your eligibility for SG contributions contact your Business Development Manager; their details are on our website at mediasuper.com.au/bdm or call us on There is also a tool for this on the Australian Taxation Office (ATO) website at ato.gov.au.

2 > YOUR SUPER 2 (SG) contributions (cont...) ALEX / GRAPHIC DESIGNER Alex works as a graphic designer for a media company and decides to become a freelancer. In his first year, working from home, he is paid $20,000 by his former employer for a project. The contract he signed before taking the project stated that he was engaged for his services, but did not prescribe how or where the work should be done. Alex is not paid SG contributions for this job. He decides to quote 10% extra for future projects to allow him to make super contributions. If you are not entitled to SG contributions, there are tax-effective ways to build your retirement savings. Other types of super contributions are discussed below, some of which may suit your circumstances. Salary sacrifice If you are an employee, you may be able to make an agreement with your employer to sacrifice some of your pre-tax salary to your super account. Depending on your income level, this can be a tax-effective way to build your super. Salary sacrifice contributions are regarded as voluntary employer contributions and are concessionally taxed at 15% when contributed to a super fund; they are concessional contributions and are subject to the concessional contribution cap {explained on page 3}. Salary sacrificing is an option for employees and those employed by their own company, but not for anyone who is self-employed. Voluntary personal super contributions and tax deductions If you are self-employed for the full financial year, you can claim a tax deduction for the full amount of voluntary personal contributions made to superannuation for that year. If you are an employee for any time during the financial year, you need to meet the 10% rule to be eligible to claim a tax deduction for personal super contributions. That is, no more than 10% of your total assessable income (including reportable fringe benefits and reportable employer superannuation contributions) may be attributable to employment. Any contributions for which a tax deduction is claimed are concessional contributions; these contributions will be taxed by the fund at 15% and they are subject to the concessional contribution cap {explained on page 4}. Excess concessional contributions are subject to tax penalties. If you intend to claim a tax deduction for any personal contributions made in a financial year, you must submit a Deduction for personal super contributions form to your super fund, and you should receive a receipt of this notice from the fund. This form is available from our website at mediasuper.com.au/forms or call us on to have one sent to you. SALLY / GRAPHIC DESIGNER Sally worked part of the last financial year as an employee on various television productions. She received $10,000 salary from her different employers, as well as employer super contributions of $900 (these SG contributions are not reportable employer super contributions). Sally also has her own graphic design business and, as a sole trader, she earned $120,000 from her business in You need to notify your fund before the earlier of: the date you lodge your tax return for the income year in which the contribution was made, or the end of the next income year following the year of the contribution. Voluntary personal contributions for which you do not claim a tax deduction are non-concessional contributions. These contributions, made from your post-tax or net income, are not taxed by the fund. You may benefit from making this type of contribution if your marginal tax rate is 15% or lower, or you want to be eligible for the Government Cocontribution {explained on page 3}. Non-concessional contributions are also subject to a cap {explained on page 3}, and any excess contributions are subject to tax penalties. You are able to claim a tax deduction for part of your voluntary personal contributions in a financial year if you want to make some concessional and some non-concessional contributions. If you are employed by your own company (i.e. your business is registered as a company for tax purposes), then your company is required to make SG contributions on your behalf, and the company claims the tax deduction for these contributions. the last financial year. Her total assessable income for the financial year was $130,000. As her income as an employee was less than 10% of her total assessable income, Sally can claim a tax deduction for the personal super contributions she made last financial year. She made sure that these contributions were within the concessional contribution cap.

3 > YOUR SUPER 3 Government Co-contribution The Government Co-contribution is a tax-free payment made to the super accounts of low to middle-income earners who make a voluntary personal super contribution, for which no tax deduction is claimed. The Federal Government will contribute 50 for every $1 of eligible post-tax contribution you make to your super account, to a maximum of $500, if your total income* is $35,454 or less; this amount is reduced by cents for every dollar you earn over that income, until it cuts out at a total income* of $50,454. Low Income Super Contributions (LISC) LISC is a government super payment of up to $500 per financial year to help low income earners save for their retirement. The LISC is 15% of the concessional (before-tax) contributions that you or your employer have made during the financial year. The Australian Tax Office (ATO) will work out if you are eligible for LISC, and will pay the amount directly into your super account if you are. Media Super must have your Tax File Number in order to receive the payment. Spouse super contributions If your spouse, including de facto, does not earn a salary or is on a low income, you may be eligible for a tax offset for eligible contributions you make to your spouse s super account. You may be eligible for a tax offset of 18% on contributions up to $3,000, depending on your spouse s assessable income. You could be eligible for the full tax offset of $540 if you contribute $3,000 and your spouse s assessable income is $10,800 or less, or up to $540 if it s between $10,800 and $13,800, depending on the contribution amount. Spouse contributions count towards the receiving spouse s nonconcessional contribution cap. Contribution splitting You may be able to split your super contributions with your spouse. This is only available for concessional contributions. Any amount you do split will still count towards your concessional contribution cap. You can split up to 85% of concessional contributions for a financial year. You can only make one application to split per financial year, you need to split at least $1,000 and your super account balance must be at least $5,000 after the split. IMPORTANT NOTE The super contribution type(s) that will be best for you will depend on your personal circumstances, including your age, income level and lifestyle needs, whether you are employed or self-employed and, if you have a spouse, your spouse s level of income. The maximum payment that you can receive for a financial year is $500, and the minimum is $10. Other conditions may apply regarding these contribution types. For more information, contact your Business Development Manager at mediasuper.com.au/bdm * Total income is assessable income plus reportable fringe benefits plus reportable employer super contributions. Assessable income includes reportable fringe benefits and any reportable employer super contributions. * Contribution caps Concessional contribution cap Concessional contributions include employer SG contributions, salary sacrifice and personal contributions for which a tax deduction has been claimed. These contributions are taxed concessionally at 15% when contributed to your super fund, and are subject to a cap # of: $30,000 per person per financial year, or $35,000 per person per financial year for those aged 50 and over. Any contributions in excess of this cap will be included in an individual s assessable income and taxed at their marginal tax rate. Excess concessional contributions also count towards the non-concessional contributions cap. In addition, an individual who exceeds the concessional contributions cap must pay the excess concessional contributions interest charge set by the Federal Government. Non-concessional contribution cap Non-concessional contributions are voluntary personal contributions for which no tax deduction has been claimed. These are post-tax contributions and, as they have already been taxed, they are not taxed on being contributed to your super fund. These contributions are subject to a cap in the financial year up to $180,000 per person, or, if you are under 65, up to $540,000 by bringing forward two years worth of contributions. Any contributions in excess of the cap are subject to a penalty tax of 49%. For more information, including the work test that applies for those contributing at age 65 or over, visit our website or contact your Business Development Manager. IMPORTANT NOTE We recommend you seek financial planning and tax advice from qualified professionals to assist you with this complex area, and to ensure you maximise any benefits. For more information contact your Business Development Manager, and we can refer you to our Media Super Financial Planners* if you need advice. * Media Super Financial Planners are authorised representatives of Industry Fund Services Limited ABN AFSL # Cap figures stated are for the financial year.

4 > YOUR SUPER 4 Insurance Superannuation is all about planning for a financially secure retirement. There are many factors that could affect this, in particular, have you considered how you and your family would manage if you were unable to work because of illness, injury or even death? Many of us are not covered, or not adequately covered, for this type of financial crisis. Insurance can protect you and your family against the financial burden of such a crisis. Media Super offers flexible insurance cover that s tailored to the needs of our members. * Members are able to take out Death only cover or Death and TPD cover. Cost-effective cover Media Super members can access cost-effective cover*: Death cover A lump sum payment to provide for your family, to pay off debts and continue their lifestyle, in the event of your death. Total and Permanent Disablement (TPD) cover A lump sum payment to provide for you and your family to pay debts and meet lifestyle expenses, and to cover the costs of medical expenses and any modifications needed to your home or car due to the TPD. Income Protection Income protection cover protects you and your family from a temporary loss of income if you are unable to work because of illness or injury. You may have received some default cover when you joined Media Super, and you may be able to apply for more cover if the cover you have is not adequate for your circumstances. Having insurance cover through your super is costeffective, and the premiums are deducted from your account balance each month. Further details can be found in the Member Guide Product Disclosure Statement and other reference materials. You can also check your level of insurance cover online by going to mediasuper.com.au, and logging in to the secure member area. For more information, contact your Business Development Manager or call us on Taxation Information in relation to claiming a tax deduction for personal superannuation contributions is discussed on page 2. Income averaging Income averaging is an option for some professionals in the media and entertainment industries, and is designed to prevent those professionals from being taxed at higher tax rates in a year when their income may be above average. Income averaging allows those who are eligible to pay tax based on their average income over the previous five years. Any employer super contributions, though, would be based on the current financial year s income. Specific conditions need to be met to be eligible for income averaging; more information is on the ATO website at ato.gov.au. You may want to seek advice in relation to your personal circumstances before using this strategy. Capital gains tax (CGT) small business concessions If you operate a small business, whether as a sole trader, partner in a partnership or under a trust or company structure, you may be entitled to concessions to reduce the capital gains on the sale of active assets of the business. If you are selling active assets, that is assets that are used or held ready to use in the course of carrying on your business, you may be entitled to one, or a combination, of the following four concessions: Small business 15-year exemption allows a business person to disregard the entire capital gain for tax purposes. Small business 50% reduction in relation to active assets. Small business retirement exemption allows a business person to disregard up to $500,000 of capital gains for tax purposes. Small business rollover allows deferral of the capital gain realized on the sale of active assets of the business where the proceeds are used to purchase replacement assets. In addition, a small business owner who is an individual taxpayer may also be eligible for the 50% discount for CGT assets held for longer than 12 months. Contributing capital gains to super retirement exemption If you sell of an asset that qualifies for the retirement exemption, you have the option of contributing all or some of the exempted capital gain to super, subject to a lifetime limit of $500,000. The amount of the capital gain that is contributed to super will not be treated as a concessional or non-concessional contribution, provided the contribution counts towards and does not exceed your lifetime CGT cap. You need to advise your super fund using the approved ATO form.

5 > YOUR SUPER 5 Taxation (cont...) SCOTT / SMALL BUSINESS Scott buys a small business in 2000 for $400,000. In 2010, when he is 52, he sells this business for $600,000 making a capital gain of $200,000. Scott is planning to retire; he will use some of the money from the sale to pay off the remaining debt, update his car and have an overseas holiday, and the balance will provide for his retirement. Scott takes advantage of the small business retirement exemption and contributes the $200,000 capital gain to his super account and, before lodging his tax return for that year, he sends the form to advise his super fund. Scott seeks advice in relation to the balance of $400,000 and decides to make a non-concessional contribution of $300,000 to his super fund using the bring-forward provision explained on page 3. The remaining $100,000 he will use for the purposes described above. Scott has reduced his capital gain to zero and boosted his retirement savings by $500,000. For more information, including eligibility and conditions that apply, visit the ATO website at ato.gov.au. NEED SOME HELP! ONLINE BUSINESS DEVELOPMENT MANAGERS FINANCIAL PLANNERS You can keep track of your contributions to Media Super, check your balance and manage your super account online by logging on to the secure member area. You are automatically registered for this when you join Media Super. If you ve forgotten your login details, call us for assistance on For more information on superannuation issues check out the other fact sheets on our website at mediasuper.com.au/forms. Our Business Development Managers are committed to educating members about their superannuation. They are available for general advice consultations, in person or by phone, and can visit you at your home or workplace. Their contact details are at mediasuper.com.au/bdm. Media Super has fully qualified Financial Planners* available to help you review your super, investment options, overall financial situation and financial strategies. As a Media Super member, you are entitled to an initial one-hour face-toface or telephone consultation at no cost and no obligation. Your planner will discuss the nature of any subsequent advice that they might recommend, and provide a fixed-price fee quote for your consideration. Some further advice relating specifically to your Media Super account may be available at no cost. Their contact details are at mediasuper.com.au/contactus. * Media Super Financial Planners are authorised representatives of Industry Fund Services Limited ABN AFSL Super Helpline mediasuper.com.au Print. Media. Entertainment. Arts. Superannuation. Insurance. Retirement. Financial Planning. This fact sheet contains general information and does not take into consideration your personal objectives, situation or needs. Media Super s Business Development Managers provide general advice only, and before engaging a Business Development Manager, you should read the Financial Services Guide (FSG) that can be found at mediasuper.com.au and provides important information as to the financial services offered. Before making any financial decisions, you should first determine whether the information is appropriate for you by reading the Product Disclosure Statement and/or by consulting a qualified financial adviser. Issued August 2015 by Media Super Limited (ABN , AFSL ) as Trustee of Media Super (ABN , USI Superannuation ). MSUP 37437