By: Max Newnham
Small business owners are disadvantaged when it comes to superannuation tax deduction rules and the Centrelink income test.
There have been and still are many examples of where small business owners are disadvantaged compared with employees. Superannuation tax-deduction rules and the Centrelink income test are two examples.
Under the current Centrelink income test, an employed person of pension age, which is 65 for those born before July 1, 1952, with the age increasing in half yearly increments up to age 67 for people born after December 31, 1956, receive a work bonus. This means the first $250 a fortnight earned is not counted under the test, up to a maximum of $6500 a year.
If a person of pension age is self-employed, all of the income they earn is counted under the income test. A single small business owner with deemed investment income of $4264, and net business income of $13,000, would have their age pension reduced by $6500 a year. A single employed person with the same deemed investment income, and a salary of $13,000, would only have their age pension reduced by $3250 a year.
Q. I was employed since the start of the 2017 financial year but resigned at the end of September and started a mobile coffee business as a sole trader. Through a lot of hard work and clever marketing I have produced good profits from day one. I would like to reduce my tax and thought making tax-deductible super contributions would be a good start. Am I eligible to make them?
A. Depending on how much employment income you received up to the end of September you may not be able to make a tax-deductible self-employed super contribution this year.
Under the current rules, a person who receives, or is entitled to receive, superannuation guarantee contributions by an employer can be ineligible to claim a tax deduction for self-employed super contributions.
The exception to this rule is when a person’s employment income is less than 10 per cent of their total assessable income in a financial year. In your case, if your employment income until the end of September was $15,000, you must earn income of at least $136,516 from your mobile coffee business for the 2017 year.
If your employment income is 10 per cent or more of your total assessable income, you will be ineligible to make a tax deductible super contribution for the 2017 financial year. You could, however, consider changing your structure from a sole trader to a company or a discretionary trust and be employed by your business. You could then make tax-deductible superannuation contributions this financial year.
Not all of the changes to superannuation recently introduced by the Coalition reduce benefits. One of the amendments that will apply from July 1, 2017, changes the rules relating to deductible personal super contributions.
From the start of the 2018 financial year, individuals under the age of 65, and those aged 65 to 74 who pass the work test, will be able to claim a tax deduction for personal super contributions up to the maximum concessional contribution limit.
This means the superannuation disadvantage that exists for small business owners like you, who start a business part way through a financial year, will no longer exist from July 1, 2017.
Source: The Sydney Morning Herald
