Super Co-Contribution

The superannuation co-contribution was introduced from 1st July, 2003. If you are eligible and make personal (after tax) contributions to a complying super fund or Retirement Savings Account (RSA), the Government will match your personal contribution with a co-contribution up to certain limits.

From 1st July, 2007, the maximum co-contribution amount is $1,500, and the self-employed may be eligible if a tax deduction is not claimed.

Eligibility

From 1st July, 2008, you may be eligible for the co-contribution if:

  • You make a personal super contribution by 30th June each year into a complying super fund or Retirement Savings Account;
  • Your total income is less than $60,342 (indexed annually);
  • 10% or more of your total income is from eligible employment, running a business or a combination of both;
  • You are less than 71 years old at the end of the year of income;
  • You do not hold an eligible temporary resident visa at any time during the year;
  • You lodge an income tax return for the relevant year.

Your super fund needs your Tax File Number (TFN) before it can accept a personal contribution or a co-contribution.

Making a personal contribution

Personal super contributions are the amounts you contribute to your super fund from your after tax income. This is in addition to any employer contributions and does not include contributions made through a salary sacrifice arrangement.

Any personal super contributions amount up to $1,000 will attract the super co-contribution. Additionally, the personal contributions do not need to be made in a lump sum. You may elect to pay regular amounts throughout the financial year.

Super co-contribution thresholds

The way your co-contribution is determined will depend on the income year in which you made your personal super contributions.


  Lower income threshold Higher income threshold What will I receive for every $1 of personal super contributions? What is my maximum entitlement?
From 1st July, 2008 $30,342 $60,342 $1.50 for every $1, up to a maximum co-contribution of $1,500 a year. The maximum amount is $1,500. However, this will reduce by 5c for every dollar over $30,342 up to $60,342.
From 1st July, 2007 until 30th June 2008 $28,980 $58,980 $1.50 for every $1, up to a maximum co-contribution of $1,500 a year. The maximum amount is $1,500. However, this will reduce by 5c for every dollar over $28,980 up to $58,980.
From 1st July, 2004 until 30th June, 2007 $28,000 $58,000 $1.50 for every $1 (every $3 for the 2006 year), up at a maximum co-contribution of $1,500. The maximum amount is $1,500. However, this will reduce by 5c for every dollar over $28,000 up to $58,000.
From 1st July, 2003 until 30th June, 2004 $27,500 $40,000 $1 for every $1, up to a maximum contribution of $1,000 a year. The maximum amount is $1,000. However, this will reduce this by 8c for every dollar over $27,500 up to $40,000.

 

The co-contribution:

  • Must be preserved in the fund;
  • Is not included as income in your tax return;
  • Will not be subject to any taxation when paid to the fund and;
  • Will not be taxed when received as a benefit.

Let’s consider this by way of a few examples:

Annual income of $40,000 (in 2008-09 year)

Bob has an annual income of $40,000. Should he salary sacrifice $2,000 into superannuation or take this amount as wages (paying his marginal tax rate of 30% plus 1.5% Medicare Levy) and contribute the net amount as a personal contribution and claim the co-contribution?


Bob’s super account balance if he salary sacrifices

Contributions in		 $2000
Less: Contributions tax (300)
__________________________
Amount in super		 $1,700

 

Bob’s super account balance if takes the amount as wages and makes a personal (after tax) contribution

Personal contributions		 $1,370
(after tax and Medicare)
Add: Co-contributions $1,017
__________________________
Amount in super		 $2,387

 

Under the second option Bob is better off to the tune of $687.00!

A couple with annual incomes of $75,000 and $25,000 (in 2008-09 year)

Jim has an annual income of $75,000. Jenny works part time and has an annual income of $25,000. Should Jim salary sacrifice $2,000 into superannuation or take the amount as wages and get Jenny to contribute the net amount as a personal contribution?


Jim’s super account balance if he salary sacrifices
Contributions in $2,000
Less: Contributions tax (300)
__________________________
Amount in super		 $1,700

 

If Jim took the income as cash instead of salary sacrificing the $2,000 he would receive a net amount of $1,370 (after paying tax at 30% plus 1.5% Medicare Levy). If he then gave this money to Jenny and she contributed it to her superannuation account as a personal contribution the situation would be as follows:


Jenny’s super account balance
Personal contributions $1,370
Add: Co-contributions $1,500
__________________________
Amount in super		 $2,870

 

Jenny qualifies for the full co-contribution of $1,500 as her income is under the lower threshold of $30,342. Jim and Jenny’s combined superannuation accounts are better off by $1,170.

Annual income of $60,000

Debbie has an annual income of $60,000. Should she salary sacrifice $10,000 into superannuation together with a personal contribution of $2,000 or take $10,000 as wages then contribute both the net amount and additional $2,000 as personal super contributions? (NB: by salary sacrificing $10,000 Debbie is bringing herself under the $60,342 cut-off threshold for co-contributions.)


Debbie’s super account balance if she salary sacrifices
Contributions in – salary sacrifice $10,000
Less: Contributions tax $1,500
Personal contributions $2,000
Add: Co-contributions $517
__________________________
Amount in super		 $11,017

 

Debbie’s super account balance if she takes the amount as wages
Personal contributions $6,850
(after tax and Medicare)
Personal contributions $2,000
__________________________
Amount in super		 $8,850

 

In this case Debbie is actually better off by $2,167 by salary sacrificing and making personal contributions!

There is a small window of opportunity to utilise salary sacrifice in this manner prior to 30th June 2009. As from 1 July 2009 the definition of income used to determine the eligibility for co-contributions will include salary sacrificed superannuation contributions. From that date, any salary sacrificed superannuation will be added to your income in determining whether you are under the maximum income threshold.

As you can see from these examples, there is not one golden rule and you must consider your personal circumstances when assessing the best option for you. Please contact us if you are would like assistance with calculating your personal after-tax position.

How will I know that I have received the super co-contribution?

The Tax Office will send you a letter with the details about your co-contribution amount after it has been paid to your super fund. Unless you nominate a particular super fund account, your co-contribution will usually be paid into the fund where you make your personal super contributions.