Halved measures

With the benefit soon to reduce, time is running out to make the most of the super co-contribution.

With the benefit soon to reduce, time is running out to make the most of the super co-contribution.

Government superannuation co-contributions for low- and middle-income earners will be halved from July. The change means that the lead-up to June 30 will be the last opportunity many people have to use the benefit.

Under the current rules, for people with income of $31,920 or less the government will match super contributions dollar for dollar, up to a maximum of $1000.

The government will only match personal non-concessional (after-tax) contributions. But they will not match concessional contributions, such as super guarantee payments.

Once income exceeds $31,920 the co-contribution tapers off until income reaches $61,920, when the benefit cuts out altogether.

Under the proposed new rules, which take effect at the start of the new financial year, the government's co-contribution will be 50 cents for each dollar contributed by the fund member.

As a result, from July 1 a fund member with income of less than $31,920 who puts in $1000 of personal contributions will receive a $500 co-contribution. The co-contribution reduces by 3.33 cents for each dollar in excess of that amount and cuts out at $61,920. The same taper rate will apply to the $500 next year, so that the co-contribution will cut out when income reaches $46,920.

The head of technical services at OnePath, Andrew Lowe, says the change in the income level at which co-contributions cut out means that the current financial year (ending June 30) will be the last opportunity many people have to use the benefit.

"The co-contribution makes personal contributions very attractive in many circumstances," Lowe says.

He says the government has cut its matching contribution from its original level of $1.50 for each dollar of personal contribution.

When the government announced the change to the scheme last year it said low-income earners would benefit from a contribution tax refund scheme, to be introduced in the 2013/14 financial year.

For those earning less than $37,000 a year the 15 per cent contribution tax on the compulsory contributions will be refunded.

- To be eligible to receive a government superannuation co-contribution fund members must be under 71 years of age at the end of the financial year and must be eligible to contribute to a superannuation fund.

- They must earn 10 per cent or more of their income from carrying on a business, being in eligible employment or a combination of the two.

- The government will match personal non-concessional (after-tax) contributions only. If the member claims a tax deduction for all of their personal super contributions within the relevant financial year they will not qualify for a co-contribution.

- Total income in the 2011-12 financial year must not exceed $61,920. Total income includes assessable income, reportable fringe benefits and employer super contributions.

- The maximum co-contribution is paid on income at or below $31,920. The co-contribution reduces by 3.33 cents for each dollar in excess of that amount and cuts out at $61,920.

- The co-contribution is not subject to contribution tax when it is paid to the member's fund. It is not counted as income in the member's tax return.

- Earnings on the co-contribution will be taxed in the same way as any other earnings of the fund.

- Receipt of the co-contribution is automatic. The Australian Taxation Office determines eligibility based on information provided by the super fund and from the member's income tax return.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles