Small business owners who aren't earning enough taxable income to contribute to super should consider other alternatives and avoid the additional legislative risk of superannuation, according to SFG Australia private client adviser Jim Kilkenny.
Kilkenny said he often saw situations among small business owners where the value of their tax deduction for the $25,000 concessional contribution limit varied from year to year.
If their cash flow did not support super contributions in any one year, there was no point making a contribution, because their marginal tax rate would be the same as the tax on contributions, Kilkenny said.
"We usually say to people not to take on the additional legislative risk of super unless you're getting a good net positive tax outcome for making the contribution," he said.
Small business owners should investigate non-super savings alternatives, or reduce their debt if they're not earning enough taxable income, he said.
However, Kilkenny warned that business owners looking at investing their money somewhere other than super wouldn't necessarily get the same result they would if they "maxed out" their contributions in years where their taxable income is higher.
Small business owners in the retail space were facing the situation where they were having a couple of bad years of trading, and the compounding effects of that lost opportunity of contributions was very significant, he said.
However, Fiducian adviser Michael Dale said business owners should at least be paying themselves the super guarantee.
The self-employed must have very strong discipline and pay themselves first out of what they earn — otherwise nothing would happen with their retirement wealth, Dale said.
They have to determine a strategy for retirement, because without one, it would take much more discipline to accumulate wealth, he added.
