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Should I pay myself super as a business owner?

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I run my own business and have always treated the growing value of my business as my superannuation but I am worried if anything ever happened to my business that I would blow away my nest egg. I am 45 years of age and would like to grow my super which is about $30,000 from the days when I was an employee.

My wife, who is a schoolteacher, has about $120,000 in her fund and I am thinking about starting a self-managed super fund (SMSF) with her. Do we have enough money to do so and how can I pump up my contributions as I feel I need to play catch up? At the moment the business is doing really well and so I thought I would make hay while the sun was shining.

It is wise not to place too much on your business as a nest egg as who knows what competitive threat could be around the corner. Think about the record and bookshops which no longer exist because of the internet!

In terms of the amount of money you and your wife have, $150,000 is OK, though I prefer around $200,000 to make the costs of a SMSF really comparable to many industry funds. So, if you keep your annual costs of running your fund to around $2000 and you have at least $200,000 in your fund, then your costs are around one per cent. As you add to your fund, the costs fall.

On the subject of how you, as a self-employed Aussie, can boost your super, you can look at both concessional and non-concessional contributions. Two tests have to be met with the first being that you are not receiving super contributions from an employer. However, there’s a second test which says if your employment income is less than 10 per cent of the total assessable income received, then you can make a self-employed contribution. The employment income includes things such as salary-sacrificed amounts and reportable fringe benefits, but your assessable income includes employment income, business income, investment income, trust or partnership income, foreign income and net capital gains.

Now as you’re under 50 years of age, you have a cap of $25,000 a year, which gives you a maximum for concessional contributions. However, you can make non-concessional contributions up to $150,000 a year or $450,000 in one go to cover three years. These rules apply to your wife as well. You and your wife could put $900,000 into super in one go, non-concessionally and $50,000 a year concessionally.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, December 08, 2011

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