Superannuation For The Self-Employed If you are self-employed, you are under no obligation to make superannuation contributions for yourself to a super fund. However, having some form of retirement savings and being able to claim tax deductions from your personal superannuation contributions should provide strong incentives for you to make those contributions. Superannuation for Contractors If you are a contractor, your client may already be required under the superannuation guarantee to make contributions on your behalf. This will apply to contracts where more than half of the value of the contract involves labour on the part of the contractor. This includes any mental, artistic or physical effort. Contributions must be 9% of the value of the labour component of the contract and must be made to a complying super fund. Tax Deductions Self-employed individuals are entitled to a tax deduction for the first $5,000 worth of superannuation contributions made and 75% of any remaining contributions thereafter. These deductions can only be claimed for those under 70 years of age. The amount contributed must also not exceed the age-based deduction limit. This is a limit based on the age of the taxpayer where any contributions over this limit for the income year will not be tax deductible. The age-based deduction limit is indexed and changes every year. For 2004-2005, the maximum contribution you can make where you can still claim a tax deduction is $16,912 if you are under 35, $49,936 if you are 35 to 49 and $126,306 if you are over 50. Capital Gains Tax Retirement Exemption Small business taxpayers who sell active assets and are under 55 years of age may be granted an exemption (or relief) from the usual Capital Gains Tax (CGT) if the proceeds from the sale are rolled over into superannuation. Active assets which qualify for the CGT retirement exemption must have been used for business operations more than 50% of the time the asset was owned by the taxpayer. These can include equipment as well as intellectual property and goodwill. Investment assets are considered passive and are not eligible for the CGT retirement exemption. The capital gains exempt component of your retirement pay out will not be subject to tax. However, there is a $500,000 CGT retirement exemption limit which you may not exceed when rolling over CGT exempt amounts. Recommended Reading Manage your own super with DIY Self-Managed Superannuation Funds. Minimise fees and enjoy high returns with Industry Super Funds. Get tips on how to Choose the Right Super Fund. Understand the various types of Superannuation Funds available.