The superannuation government co-contribution is an incentive for you to contribute more to your superannuation savings. The presumed intention of this is to encourage people to save more for their retirement (rather than spending it now), which will lessen the burden on the government’s social security age pension program.
So how does the super co-contribution work?
It’s simple, all you need to do is make an after-tax non concessional contribution into your superannuation fund and the government will make a co-contribution into your account of 50 cents for every dollar you contribute, up to a maximum co-contribution of $500 (i.e. you contribute $1,000 the government co-contributes $500). BUT! You need to satisfy the eligibility requirements below and the co-contribution may be reduced depending on your income level… read on:
Eligibility for the Super Co-Contribution 2016
To begin with, you need to be earning less than $35,454 to receive the full co-contribution, or less than $50,454 in the 2015/16 financial year to receive a partial co-contribution. The income amount is generally indexed annually. So, if you are reading this after 30 June 2016, you should look for the adjusted maximum income threshold. It is likely to be in a subsequent SuperGuy article.
The $50,454 includes assessable income, fringe benefits and reportable super contributions. Reportable super contributions are basically contributions made to superannuation that are over and above the compulsory contributions made by your employer AND where such contributions reduce your assessable income (e.g. salary sacrifice, personal concessional, self employed).
A second criteria is that you earn more than 10% of your income from eligible employment and/or running a business.
Thirdly, you need to have lodged an income tax return in the previous financial year.
And, finally, you need to be a permanent Australian resident who is aged under 71 on 30 June of the financial year in which you make the contribution.
How did you go? Did you satisfy the eligibility requirements? If so, keep reading…
How Much Super Co-Contribution Will I Get?
The formula to work out your super-co contribution is this:
If you earn less than $35,454 p.a. (2015/2016)
Non-Concessional Contribution made by you, multiplied by 0.5
e.g. If you make a Non Concessional Contribution of $800, you will receive a Government Super Co-Contribution of $400.
maximum co-contribution is $500.
If you earn between $35,454 p.a. and $50,454 p.a. (2015/2016)
The formula is the same as above, but with a twist. The maximum Co-Contribution that you can receive is reduced by 3.333 cents for every dollar that you income exceeds the lower threshold of $35,454.
Non Concessional Contribution made by you, multiplied by 0.5
However, the maximum Super Co-Contribution that you can receive is limited and will be less than $500. To calculate the maximum Government Co-Contribution that you can receive, follow the steps below:
Step 1: Your income p.a. minus $35,454, then multiplied by 0.03333 (write this number/result down)
Step 2: $500 minus your result from step 1 (this is the maximum co-contribution that you can receive)
e.g. If you earn $45,000 p.a. (2015/2016) and make a Non Concessional Contribution of $800, the formula would suggest you would receive $400. However, using the 3.333 cents reducer, we need to apply the following steps to determine your maximum entitlement:
Step 1: $45,000 – $35,454 = $9,546. Then…. $9,546 x 0.03333 = $318.
Step 2: $500 – $318 = $182
The maximum Super Government Co-Contribution that you can receive if $182. Therefore, if you are making the Non Concessional Contribution purely to get the Co-Contribution, there is no need to contribute more than $364. This is because $364 x 0.5 = $182.
If you earn more than $50,454 p.a. (2015/2016)
This formula is the easiest. You are not eligible for the super co-contribution…. sorry!
How Do I Notify the Government of My Super Co-Contribution?
Here’s the easy part, you don’t need to tell anyone or report it anywhere. Simply by making the Non-Concessional and completing your income tax return for that year, the government will be notified of your income (from your tax return) and will be notified of your contribution (by the superannuation fund). This will provide them with all the information necessary to calculate your Super Co-Contribution.
When Will I Receive the Government Super Co-Contribution?
Once you have lodged your income tax return for the year in which you made the Non Concessional contribution, the government will pay the Co-Contribution into your superannuation account. If the government does not make the Co-Contribution payment into your account within 60 days of receiving all of the required information that they need to determine your eligible and calculate your co-contribution amount, they will pay interest on the Co-Contribution amount as compensation. Again, this will automatically be calculated by them and paid to your account.
Tax on the Government Super Co-Contribution
No tax will be payable on the Co-Contribution upon entering your superannuation fund.