COMMUNITY Making the most of the government
MANAGEMENT superannuation co-contribution at
ADVISORY your community organisation
PROJECT INC
(CMAP)
The government’s co-contribution The formula for calculating the
Key Points
scheme aims to help average superannuation co-contribution
Government will contribute up to $1.50 income earners increase their amount is:
for every $1 put into super by those retirement savings via the
superannuation system. $1,500 - {[(total assessable income
earning less than $58,000 pa.
+ reportable fringe benefits) -
May be beneficial to replace some The scheme not only encourages $28,000] x 0.05}
salary sacrificed to super contributions. people to make extra superannuation
contributions on top of the For example, looking at the table
Taxpayers with spouse earning under compulsory 9% employer below shows that, if you earn $42,000
$10,8000 pa may be able to double up superannuation guarantee, but also and make a personal superannuation
on co-contribution and spouse rebate. increases people’s superannuation contribution of $1,000 during the
savings by providing a generous financial year, you will receive a
government co-contribution. government co-contribution of $800.
If your personal superannuation
How much superannuation co- contribution is:
contribution will I get? $1,000 $500
The amount of government co- And your The government co-
income is: contribution will be:
contribution that you receive depends
on your annual income and the $28,000 or $1,500 $750
less
amount of personal superannuation
contributions you make during the $30,000 $1,400 $750
financial year. $32,000 $1,300 $750
$34,000 $1,200 $750
Under the scheme, the government
$36,000 $1,100 $750
pays $1.50 for every $1 of personal
contributions up to a maximum of $38,000 $1,000 $750
$1,500 each financial year. People $40,000 $900 $750
who earn less than $28,000 will $42,000 $800 $750
receive the maximum co-contribution.
$44,000 $700 $700
For those with incomes above
$28,000, the maximum co- $46,000 $600 $600
contribution reduces by 5 cents for $48,000 $500 $500
each dollar of income, and phases $50,000 $400 $400
out completely at $58,000. $52,000 $300 $300
$54,000 $200 $200
From 1 July 2007 onwards these
$56,000 $100 $100
threshold amounts will be adjusted.
$58,000 $0 $0
The lower income threshold of
$28,000 will be indexed in line with
average weekly earnings, and the
You can also find out how much the
higher income threshold of $58,000
government will contribute on your
will be set at $30,000 above the
behalf by using the Tax Office super
indexed lower income threshold.
co-contribution calculator, at the ATO
website.
Making the most of the government super co-contribution -1- October 2004
Making the most of the government superannuation co-contribution
Meeting the eligibility criteria For example, if you turn 71 on 15 For example, assume your
June 2005, you will not be eligible for assessable income is $40,000.
To be eligible for the government co- the superannuation co-contribution
contribution, you must: for the 2004/05 year. $
Salary sacrifice strategy
Make personal superannuation Be an Australian resident Salary sacrifice into 1,000
contributions superannuation
If you are an Australian resident or
Personal superannuation New Zealand permanent resident Less superannuation 150
contributions are amounts contributed contributions tax at 15%
working in Australia you are eligible
to your superannuation fund from Payment into your 850
for the superannuation co- superannuation fund
after-tax income. This means the contribution. However, you will not be Government co-contribution strategy
following superannuation eligible if you hold an eligible Income contributed to 1,000
contributions do not qualify for the temporary resident visa at any time superannuation
government co-contribution: during the income year. Less income tax at 30% 300
Personal superannuation 700
compulsory employer Lodge an income tax return for the contribution
superannuation guarantee financial year Add government co-contribution 900
contributions; on $700
You must lodge an income tax return Payment into your 1,600
to receive the superannuation co- superannuation fund
salary sacrifice contributions; and
contribution, as the Tax Office uses
this information to determine your
contributions made by your
eligibility. However, when considering this
spouse or another person on
your behalf. strategy, you must take into account
that you will need to pay additional
What if I don’t have enough money
There are no restrictions on the income tax on the $1,000 that was
to make personal contributions? previously salary sacrificed. This will
amount or number of personal
superannuation contributions you can If you cannot find the extra money to lower the amount of after-tax income
make. make personal superannuation you have at your disposal.
contributions, there are some options
Have an assessable income and that you may wish to consider. In addition, any money contributed to
reported fringe benefits of less superannuation is generally
than $58,000 Reduce salary sacrificed amounts preserved in the superannuation fund
until you retire. Therefore, if you are
Your assessable income is your total If you already make salary sacrifice
still a long way off from retirement,
income before taking any tax superannuation contributions, it may
you must weigh up the benefits of
deductions into account. be beneficial to reduce that amount
contributing to superannuation as
and replace it with personal
opposed to having access to your
Reportable fringe benefits are non- superannuation contributions to gain
money now.
cash benefits you may receive from eligibility for the government co-
your employer. contribution.
Borrowing money
Earn at least 10% of your income An additional advantage of this You may also consider taking out a
from eligible employment strategy is that, since personal loan for the required amount.
superannuation contributions not However, it is important to ensure the
“Eligible employment” generally
claimed as a tax deduction are not interest charges do not cancel out the
means any work arrangement that
subject to the 15% superannuation benefit of the co-contribution, as
results in you being treated as an
contributions tax, you can potentially these charges are not tax-deductible.
employee.
increase the amount of money in your
superannuation account by reducing Re-contributing
Be under the age of 71
the amount of tax payable inside the If you are over 65, you can also gain
You must be less than 71 years old at
superannuation fund. eligibility for the government co-
the end of the income year in which
contribution by withdrawing the
you make the personal contribution.
Making the most of the government super co-contribution -2- October 2010
Making the most of the government superannuation co-contribution
required amount from your advantages available under salary * In this example, we only made a
superannuation, paying tax, if any, on sacrifice arrangements. personal superannuation contribution
the withdrawn amount, and then of $450. This is because, on an
putting it back in as a personal For example, assume your income of $45,000, the maximum
contribution. However, those assessable income is $60,000 and government co-contribution you are
considering this strategy must ensure you currently make personal entitled to is $650. Therefore,
they satisfy the "work test". superannuation contributions of contributing more than $450 will still
Otherwise, they may not be able to $15,000 per annum. only attract a $650 government co-
re-contribute into superannuation. contribution.
$ $
Under the work test, if you are aged No salary sacrifice This example shows that, by reducing
between 65 and 74, you must have Compulsory 5,400 assessable income via salary
worked for at least 40 hours in 30 superannuation sacrifice to become eligible for the
guarantee
consecutive days to make government’s co-contribution, the
Less superannuation 810 4,590
superannuation contributions in the amount of superannuation
contributions tax at
relevant financial year. Those aged 15% contributions for the income year was
75 and over cannot make personal Add amount of 15,000 increased by $2,442.50.
superannuation contributions. income to contribute
to superannuation
Less income tax 4,740 10,260 Doubling up on co-contributions
If you earn more than $58,000 pa (approximate)
and the spouse rebate
Payment into your 14,850
People whose annual income is superannuation fund If you have a spouse who earns less
$58,000 or more are not eligible to Assume you decide to salary sacrifice than $10,800 per year, you can
receive a government co-contribution. the $15,000 into superannuation potentially double up on the
However, you may be able to reduce instead of making personal government co-contribution and
your annual income by making contributions: you will not only spouse rebate.
superannuation salary sacrifice become eligible for the
contributions to qualify for the superannuation co-contribution, but The spouse rebate allows the
scheme. This is because salary you will also pay approximately contributor spouse to claim an 18%
sacrified superannuation $4,740 less in income tax. However, tax rebate on spouse contributions up
contributions are not counted as part this will be slightly off-set by the fact to $3,000. This results in a maximum
of your assessable income when that since your assessable income is rebate of $540.
determining eligibility for the reduced to $45,000, you will receive
government co-contribution. less compulsory superannuation To take advantage of the government
guarantee. superannuation co-contribution, you
Salary sacrificing means you can reduce the spouse contribution to
relinquish part of your income so your $ $ $2,000 for a rebate of $360. The
employer can make additional Salary sacrifice and co-contribution lower-income earning spouse can
superannuation contributions on your Salary sacrifice into 15,000 then use the other $1,000 as a
behalf. The amount you can salary super personal superannuation contribution
sacrifice into superannuation is Less 15% super 2,250 12,750 to become eligible for a government
significant, and increases the older contributions tax
co-contribution of $1,500.
you are. For example, a 50-year-old Add compulsory 4,050
super guarantee
employee can salary sacrifice up to For example, the high-income
Less 15% super 607.50 3,442.50
$95,980 into superannuation. contributions tax earning contributor spouse, whose
Add personal super 450 * partner’s total assessable income is
Although it may not seem beneficial contribution less than $10,800, contributes $2,000
to salary sacrifice thousands of Add govt co- 650 * to his partner’s personal
dollars to qualify for the government contribution on $45k superannuation and receives a $360
co-contribution, the benefits do add Payment into your 17,292.5 rebate (18%) on his income tax.
up. Also, there may be major tax super fund
Making the most of the government super co-contribution -3- October 2010
Making the most of the government superannuation co-contribution
His partner then makes a $1,000
personal contribution to her
superannuation fund, and becomes
eligible for a $1,500 government co-
contribution.
$
Spouse contribution 2,000
Personal contribution 1,000
Total 3,000
Tax offset (rebate) 360
Government co-contribution 1,500
Therefore, the couple receives an
additional $1,500 in superannuation,
while the spouse rebate is only
reduced by $180.
Is there anything else I have to do?
Although you do not need to apply for
the government co-contribution, you
must lodge an income tax return, as
the Tax Office will use this
information to determine if you are This document is subject to copyright
eligible for a government co- and may not be used or reproduced
contribution. without the prior written consent of
the copyright owner.
Once the Tax Office determines the
amount of government co- For more details, contact:
contribution you are entitled to, the
co-contribution will be paid into the DAVID BEDDOE
same superannuation account into B.Com CPA GradDipLaw LL.M/LP
which you made your personal SOLICITOR AND BARRISTER
superannuation contributions. If you CERTIFIED PRACTISING
ACCOUNTANT
wish to have your government co-
contribution paid into a different At
superannuation fund, you can
complete a superannuation fund Community Management Advisory
nomination. This form can be found at Project Inc. (CMAP)
www.ato.com.au/content/39987.htm. Telephone: 02 4956 1112
Alternatively, the details can be found Regular Mail: PO Box 38
in TaxPack. BOOLAROO NSW 2284
Email: cmapemnc@bigpond.com
To find out how to make the most
of the government co-contribution
in your circumstances, contact the
ATO or CMAP.
Making the most of the government super co-contribution -4- October 2010