Government super co-contribution - how does it work?

• 

  Cheap Steve on 20/06/2013 - 18:51

  Make a $1k personal super contribution before Friday 28 June.you really should send by wednesday 26 June to allow 2 days clearing by your financial institution for bay, eft and cheque.

  Your super cocontribution of up to a maximum $500 will be paid into your super fund in about 12 months time automatically provided you pass the income test and lodge a tax return. You don't have to claim for it.

  It's a good deal if you qualify. Just remember it's a long term strategy as you cannot access your super until you reach your "preservation" age, typically age 60.

  • 

    jc8 on 20/06/2013 - 20:02

    Adding to this, as well as reaching your preservation age you have to meet a condition of release such as reaching age 65 or retiring. Reaching your preservation age in itself is not going to allow you to access funds.

• 

  flyingtrapeze on 20/06/2013 - 20:10

  make sure the max $25K rule is observed

  • 

    jc8 on 20/06/2013 - 20:11

    +2

    Incorrect, the $25,000 cap is for concessional contributions such as salary sacrificing, employer superannuation guarantee contributions and personal concessional contributions, essentially contributions in which you claim a tax deduction for. To receive the govt co-contribution you would need to make a non-concessional contribution of up to $1,000, of which the non-concessional contribution cap is $150,000.

• 

  jc8 on 20/06/2013 - 20:10

  +1

  There is more to it than simply putting in $1,000.

  To receive the maximum govt co-contribution you need to ensure your income falls below $31,920, and to receive a partial govt co-contribution your income would need to fall below $46,920. Of your total income, 10% must be from employment of some kind (ie. it can't all be from investment earnings).

  You do not need to claim the contribution in your tax return as you are not claiming a tax deduction on said contribution. The govt will automatically credit your account so long as you make a non-concessional contribution and meet the above requirements.

  As already mentioned, the maximum co-contribution you can receive is $500.

• 

  Franconian on 20/06/2013 - 20:17

  Thanks for your replies.

  I should qualify and will put $1,000 before the end of the tax year.

  Is there anything I need to fill in regarding the co-contribution in order to receive it? How does the government know that I invested $1K myself and that I qualify, i. e. below $46,920 etc.?

  • 

    jc8 on 20/06/2013 - 20:20

    It's automatic, remember your superannuation fund has to report to pay tax on 15% on earnings and realized gains held after 1 year.

  • 

    YTW on 20/06/2013 - 21:27

    The super fund reports all contributions that you make to the tax office. They will use your TFN to match up the super contributions that are reported by your super fund, with your income from when you submit your tax return. They will calculate if you are eligible for a co-contribution and then pay it into the same super fund that you made the $1K contribution to.

    So all you have to do to make sure you get the co-contribution is;

    (a) check that you are eligible for at least a part co-contribution
    (b) make sure you put the non-concessional contribution of up to $1K into your super fund on time - the fund has to RECEIVE the monies before the 30th of June. You need to factor in that the 30th falls on a Sunday this year and that BPay takes about 3 days, EFTs take about 2 days (but can take longer) etc. Your super fund will be able to tell you what their closing times/days are for contributions to make it in time.
    (c) submit your tax return for the 2012/13 tax year

    Then it's just a matter of sitting back and waiting for your super fund to send you a nice little letter telling you that the government has put the co-contribution into your account.

• 

  Lathratsamy on 20/06/2013 - 23:08

  Hi, I'm a newbie to Ozbargain. This is a really interesting topic- could anyone out there also shed some light for me whether this co-contribution also applies to self managed fund which my husband & I have just opened. How would the govt know who made the deposit? Husband or wife?

  • 

    strangeloops66 on 21/06/2013 - 00:05

    Provided your fund is a complying fund (concessional tax rates apply to it), which it almost certainly would be (otherwise why bother setting up a SMSF?), then yes, provided you meet the requirements that others have mentioned, you are entitled to the co-contribution. The ATO will get the information from the fund's annual report. All contributions need to be reported, as well as the person who made the contribution. If a tax deduction has been claimed and allowed for the contribution, a co-contribution is not payable.

    • 

      Lathratsamy on 21/06/2013 - 00:10

      Thank you. Will check it out tomorrow.

• 

  tooblue on 21/06/2013 - 14:33

  IMHO, $500 is not really worth it. $1000 locked for 30 or 40 years for merely $500? There must be better investment options.

  In the old days when the gov matches $1.5 for your $1, that was a good deal but all is ruined by the YOU KNOW WHO.

  • 

    jc8 on 21/06/2013 - 20:05

    +2

    Show me another investment where you can get a 50% risk free return in a few weeks.

    You also have to realise that the additional $500 is then invested continuously over that 30 to 40 years.

    If cash-flow is tight then this strategy may not be for you.

    • 

      tooblue on 21/06/2013 - 20:52

      -2

      Other than compond interest on the $500, you also need to consider time value of money. How much is the $500 worth when you retire, even with reinvestment? You take it 50% risk free return in a few weeks, I take it $500 risk free return in 30 years. Many investment can achieve this target within 30 to 40 years.

      I do value you opinion, just think it's not worth. If it was $1500 for $1000, I would definitely do it, if only I was under the max threshold.

      • 

        jc8 on 22/06/2013 - 03:28

        +2

        Your response shows you're not quite grasping the concept of co-contribution and superannuation, and that's okay as it can be quite complex. Once again let me repeat that if cash-flow is a problem (ie. living day to day) then the govt co-contribution strategy may not be suitable for you.

        Lets compare your suggested scenario above with the co-contribution strategy. Assume in both cases all funds are invested in the same investment, the investment is held until retirement at age 65 (say in 30 years), and all investment income is reinvested. Also, lets assume in both cases you're earning $30,000 per annum (ie. below the lower co-contribution threshold), that you're eligible to receive the co-contribution and your marginal tax rate is 19%.

        In your scenario you invest $1,000 outside of super over 30 years, during which all investment income is taxed at your marginal tax rate of 19% before being reinvested. At retirement if you choose to sell your investment, any capital gains made are also taxed at your marginal tax rate of 19% (potentially more), less the capital gains discount of 50% as your asset has been held over a year.

        In the co-contribution example, you contribute $1,000 as a non-concessional contribution into superannuation before the end of the current 2012/13 financial year. These funds are then invested into the exact same investment as above. Two months after 1 July 2013 you receive the co-contribution of $500 which you invest into the same investment. Income is taxed at a flat 15% within superannuation over 30 years, and 0% if your superannuation is converted into a pension. Capital gains is taxed at a flat 10% within superannuation inclusive of the 33.33% discount from holding the asset over a year, and 0% if its sold within pension phase.

        You're comparing $1,000 over 30 years subject to higher tax on income and growth, versus $1,500 over 30 years subject to lower or not tax within super/pension. Rates of income and growth are THE SAME as you're investing in the exact same thing, but you have an ADDITIONAL (risk free govt provided) $500 co-contribution payment after only a few months in. Also, what happens if your income rises over $30,000? You pay MUCH MORE tax outside of super when you move to a higher marginal tax bracket.

        You're mistaken about the time value of money, both grow at the same investment rate for 30 years. In the case of co-contribution you're growing $1,500 instead of $1,000 at lower tax rates and the already mentioned capital gains advantages.

      • 

        jc8 on 22/06/2013 - 03:39

        I'll summarise in case a wall of text makes you want to sleep:

        Invest outside of super
        - $1,000 invested over 30 years
        - investment income taxed at marginal tax rates
        - capital gains are taxed at marginal tax rates (less 50% discount if held over a year)

        Govt Co-contribution
        - $1,500 invested over 30 years.
        - investment income taxed at flat 15%, or 0% in pension phase
        - capital gains are taxed at flat 10% (discounted) if held over a year, 0% if sold in pension phase

        Differences really start to show if your income rises and/or income is reinvested across 30 years of growth.

  • 

    theophilusthistler on 22/06/2013 - 03:32

    +2

    50% risk free return is great. And the effort is not just for $500.
    If you put $1,000 into super and get the $500 bonus you will have $26,174 in 30 years (assuming 10% growth and no taxes). This compares to $17,449 if you invest that $1,000 at the same rate. That's an extra $8,724 for that $500 contribution! And you can do this each year.

    If you strip out inflation to convert it to 'todays dollars' it's an extra $3806 in 30 years, not just $500.

    EDIT: jc8 beat me to it +1

    • 

      jc8 on 22/06/2013 - 03:44

      Well done on calculating it out, I could never bring myself to do that!

• 

  Lathratsamy on 21/06/2013 - 14:43

  Agree, but where else would you get 50% return?
  You might as well get something back from the govt. its our tax money anyway.

• 

  s0805 on 21/06/2013 - 18:26

  i though you would have to declare this on tax return that you've done the contribution.
  Tricky question on this topic….
  I've already done the contribution to fund and given that i do my tax return govt will pay the money to my super account….note their is no specific time frame by when govt will pay this money….what happens if i close my existing super account and move to another super between this time frame….what happens then, do i have to do anything

  • 

    strangeloops66 on 21/06/2013 - 20:07

    i thought you would have to declare this on tax return that you've done the contribution.

    You should complete label A3 if you earn any income from partnerships, trusts or a shared income group. It will help ensure that your receive your correct entitlement to a super co-contribution.

    what happens if i close my existing super account and move to another super between this time frame….what happens then, do i have to do anything

    http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=…

    • 

      s0805 on 22/06/2013 - 13:52

      You should complete label A3 if you earn any income from partnerships, trusts or a shared income group. It will help ensure that your receive your correct entitlement to a super co-contribution

      So if I just work as an employee and not receiving income from partnerships, trusts or a shared income group. i should not do anything specific in Tax return….

      http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=…

      thanks for that….I will have to advise govt as soon as i change my fund….

• 

  walek1079 on 22/06/2013 - 07:14

  I am a housewife and haven't earnt a penny this tax year, from what I have read I won't be entitled to this. Can anyone confirm my understand?

  ATO website;
  To satisfy this test, 10% or more of your total income must come from employment-related activities, carrying on a business or a combination of both. These amounts are referred to as eligible income amounts.

  • 

    jc8 on 22/06/2013 - 07:37

    You are correct. Your husband though may be entitled to the spouse contribution tax offset whereby if he contributes $3,000 as a non-concessional contribution into your superannuation he may be able to claim a tax offset of up to $540.

• 

  zoecot on 22/06/2013 - 14:15

  I did it last year when is 1:1 (up to $1000) for govt contribution. Log the tax return in Augest, received the Govt. contribution directly to my super account about Nov/Dec.

  I will do the same this year although the benefit is only 2:1 (up to $500)

  • 

    s0805 on 23/06/2013 - 15:19

    I did it last year when is 1:1 (up to $1000) for govt contribution

    did you have to tick something or do something in tax return or did not mentioned anything about this….

    • 

      jc8 on 23/06/2013 - 16:55

      You don't need to indicate if you've made the co-contribution in your tax return. The ATO determines it through the resulting income and your superannuation fund's tax reporting.

      From the ATO site:

      You don't need to apply for the super co-contribution. If you're eligible, all you need to do is make personal super contributions and lodge an income tax return. We work out:

      • whether or not you are eligible
      • your super co-contribution according to your income.

      http://www.ato.gov.au/individuals/content.aspx?doc=/content/…

      • 

        s0805 on 23/06/2013 - 17:35

        thanks

• 

  anna10 on 23/06/2013 - 18:56

  http://www.australiansuper.com/reward

  "If you earn less than $46,920* per year, the Government will add to the contributions you make from your after-tax pay. This is called a co-contribution.

  • including assessable income, fringe benefits and super contributions.

  You’re eligible for a co-contribution if you:

  Earn less than $46,920 (2012/13) per year (including assessable income, fringe benefits and super contributions)"

  • 

    jc8 on 24/06/2013 - 03:39

    $46,920 is the upper threshold. If you earn slightly below this then you will receive only a partial government co-contribution.

    The lower threshold is $31,920 and is reduced by 3.33c for every dollar you earn above this.