A common question and consideration from educators is how the superannuation co-contribution works and how they can take advantage of it.
Basically, If you are considered a low to middle-income earner and make a contribution to your super fund, you might be eligible for a government co-contribution of up to $500.
What is a super co-contribution?
The superannuation co-contribution scheme is a government initiative that aims to assist low to middle-income earners save for their retirement.
What this means is depending on the amount of income you earn each year, the government may add to your super balance when you make a voluntary after-tax contribution - i.e. any superannuation contribution you make for which you do not claim a tax deduction.
The amount you receive will depend on how much you contribute as well as your income.
Are you eligible for a super co-contribution?
To be eligible for a super co-contribution from the government, generally you must:
make an after-tax contribution to your super fund
lodge your annual tax return
have a total income that’s less than $52,697 for the 2018-19 financial year, or $53,564 for the 2019-20 financial year
receive 10% or more of your income from eligible employment and/or running a business
be no older than age 70 at the end of the financial year that you’re making the contribution
have a super balance below $1.6 million as at 30 June of the financial year prior to the year that you’re contributing
not have exceeded the $100,000 annual non-concessional contributions limit
not have held a temporary visa at any time during the financial year (unless you are a New Zealand citizen, or it was a prescribed visa).
How much will the super co-contribution be?
If your total income is equal to or less than $37,697 in the 2018/19 financial year, or $38,564 in the 2019-20 financial year, and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500.
If your total income is between $37,697 and $52,697 in the 2018/19 financial year, or $38,564 and $53,564 in the 2019/20 financial year, your maximum entitlement will reduce progressively as your income rises.
If your income is equal to or greater than the higher income threshold ($52,697 in the 2018/19 financial year and $53,564 in the 2019/20 financial year), you will not receive any co-contribution.
What counts towards your total income?
Your total income for this purpose includes your assessable income, reportable super contributions and any reportable fringe benefits, less any amounts you are entitled to claim as a tax deduction due to running a business.
Reportable fringe benefits typically arise where non-cash benefits are provided to you by your employer, such as a company car or lease vehicle.
Are there other things you should be across?
The income thresholds mentioned above are indexed each year in line with increases in average weekly earnings and may change in future financial years.
Meanwhile, if you have claimed a tax deduction on an after-tax super contribution, this contribution will not entitle you to a co-contribution.
What do you need to do to get the super co-contribution?
Provide your tax file number to your super fund
You don’t need to apply for the super co-contribution, but you will need to ensure that you have provided your tax file number to your super fund.
Your super fund cannot accept after-tax contributions, or receive co-contributions on your behalf, if you have not provided your tax file number.
Notice of intent to claim or vary a deduction for personal super contributions
You will need to notify your superannuation that you will not be claiming a deduction for the contribution(s) for which you wish to be entitled to the co-contribution. The tax office or your superannuation fund will be able to provide you with the necessary documentation in relation to this notice, and/or FDC Tax can assist you in preparing the necessary documentation.
Lodge your tax return
You will need to lodge your annual tax return. The Australian Taxation Office (ATO) will then use the information provided in your tax return and the contribution information from your super fund to work out your eligibility.
If you are eligible, the ATO will automatically calculate the appropriate amount that’s owing to you and will typically deposit this into the super fund which you have made the contribution.
Meanwhile, if you’ve recently retired and have closed your super account, it may be possible to have your co-contribution paid directly to you.
Please feel free to contact us should you have any further questions or concerns relating to this matter.
DISCLAIMER - The above information is general information only and should not be considered financial advice. You should consult with a financial planner to determine whether contributing to superannuation is appropriate in your particular circumstances.