Government Co contributions

A superannuation government co contribution is a contribution made to an individual's superannuation fund by the Government as a reward to those who make after-tax (non-concessional) superannuation contributions. Payment of the government co contribution is restricted by eligibility criteria.

Who is eligible to receive a superannuation co-contribution?

To be eligible for the superannuation co-contribution, an individual must:

• make a personal after-tax contribution to a complying superannuation fund or retirement savings account
• receive at least 10% of total income* from paid employment (employee) or from carrying on a business (self-employed)
• Have less than $61,920 in total income^
• be under age 71 at the end of the income year
• not hold a temporary resident visa at any time during the income year
• lodge a tax return

* Total income includes: assessable income plus reportable fringe benefit and reportable employer superannuation contributions. If running a business, gross income (before expenses) is assessed.

^ If running a business, net income (after deductions) is assessed.

How is the superannuation co-contribution calculated?

The maximum superannuation co-contribution payable is $1,000.The Government contributes $1.00 for every $1 of eligible after-tax contributions.

The maximum amount is available where total income is less than $31,920 (2010/11 and 2011/12).

The superannuation co-contribution provides the ability for a person to receive 100% return on their contribution.

Eligibility for the co-contribution cuts out at $61,920 (2010/11 and 2011/12). Entitlement to the co-contribution reduces by 3.33c for every dollar above $31,920. These limits are usually indexed each year on 1 July, however they are frozen for the 2010/11 and 2011/12 financial years.

Example - salaried employee

Carolyn is a full time salaried employee who earns $40,000 in 2010/11. She decides she wants to increase her superannuation savings by making an after-tax superannuation contribution of $1,000.

How much co-contribution does Carolyn's superannuation fund receive?

$1,000 - ($40,000 - $31,920) * 0.03333) = $731.00 (The co-contribution is rounded to whole dollars)

As Carolyn's salary is above the lower threshold, she is not entitled to the maximum superannuation co-contribution. To maximise the 100% return on her superannuation contribution, she only has to contribute $731.00 of her own after-tax income.

Spouse contributions and salary sacrifice contributions do not attract the superannuation co-contribution. Salary sacrifice contributions will form part of 'reportable employer superannuation contributions' and may reduce co-contribution entitlements.

Example - self-employed

Alice is aged 40 and self-employed. She received $55,000 as gross business income and a further $5,000 from investment returns giving her a total gross income of $60,000 for the 2010/11 financial year. She has $15,000 of business deductions and contributed $10,000 into her superannuation fund.

Superannuation co-contributions for a self employed person

The 'at least 10% of total income' rule for a self-employed person is based on gross business income, that is, income received from carrying on a business before allowing for any deductions.

At least 10% of Alice's income must come from either employment or business. Based on $55,000 of gross business income, Alice has 91.6% of her income from her business (i.e. $55,000/$60,000) which means she meets the 10% rule to qualify for a superannuation co-contribution (subject to income limits).

How much of the co-contribution can a self-employed person receive?

The 'less than $61,920 in total income' rule depends on net business income, that is, income received for carrying on a business after allowing for any deductions.

Net business income = $45,000 [($55,000 - $15,000) + $5,000].

Alice is eligible for a reduced co-contribution of $564.00 ($1,000 - ($45,000 - $31,920 * 0.0333) rounded). She needs to contribute $564.00 to maximise her 100% return and receive a $564.00 superannuation co-contribution.

Tax implications of the superannuation co-contribution

The superannuation co-contribution:

• does not count towards the non-concessional contribution limit
• is not taxed on entry to the superannuation fund
• forms of part of the tax-free portion of the superannuation benefit
• is paid to the superannuation fund after a member lodges their tax return
• is not paid where a member claims a tax deduction on the original contribution

Superannuation implications of the co-contribution

Superannuation co-contribution:

• is preserved until a member satisfies a condition of release
• the non-concessional contribution can be used both to qualify for a co-contribution and to help fund insurance premiums where insurance is taken up through superannuation
• must be paid to an accumulation fund and cannot be paid to an insurance-only fund
• will be paid direct to a person who is retired and at least preservation age (currently 55) or permanently disabled and does not have an eligible superannuation account (an account that can accept a co-contribution payment).

Are you eligible for superannuation co-contributions?

To find out if you are eligible for superannuation co-contributions from the Government, contact an xLife superannuation adviser today. We offer free initial consultations and can conduct superannuation comparisons to help ensure you have the best fund.

Source: Asteron 2010

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December 2010