Newsletter No. 12, December 2012

Super Co-contributions

In case you are not aware, if you make personal contributions into your SMSF, our Government will also put some money in your SMSF – as a gift for you.  That’s right.  A gift from our Government.  This gift is called “Super Co-contributions”.

Super Co-contributions was first introduced by our Government back in the 2004 financial year.  Back then the rule was that if you make personal contributions (i.e. non-concessional contributions) into your SMSF, the Government will match $1 for your $1.  The maximum contribution they would match is up to $1,000.  So if you put $1,000 into your SMSF, the Government would also put $1,000 into your SMSF – no strings attached.  To qualify for the full Super Co-contribution your income for the financial year had to be below $27,500.  This was referred to as the lower threshold.  And if your income was over this amount but was less than $40,000 (the higher threshold) the maximum matching gift of $1,000 was reduced by five cents for every $1 above the lower threshold.

One of my nieces was eighteen years old at the time and she was working at a fast food outlet on weekends.  I wanted to teach my niece about superannuation so I told her that instead of me giving her Christmas presents each year, I would give her $100 which she could deposit into her superannuation fund as her own contribution.  I explained to her that by placing $100 into her superannuation fund, the Government would deposit $100 into her superannuation fund also.  So her present was actually $200.  My niece was more than happy to do this as she knew she had other aunties who would buy gifts for her so she was not missing out on presents.

Then to my surprise and delight, in the 2006 financial year, my niece deposited $900 of her own money into her superannuation fund.  So with my $100 gift and her $900, she actually deposited $1,000 into her superannuation fund.  That was also the year that our Government decided to give a bonus gift of an extra $1,500.  So that year, my niece, received in total $3,000 deposited into her superannuation fund from the Government.  The matching rate in that year was also $1.50 for every $1 of your contribution.  What a bonus!  I could not be happier for my niece.

The Super Co-contributions was reduced back to $1 for $1 in 2010.  Then in May 2012 Budget, the Government announced it may further reduce the matching rate from $1 to 50 cents as well as reduce the maximum gift of $1,000 to $500.  Regardless of whether the matching rate stays at $1 for $1 or is reduced to 50 cents for $1, I still believe it is worth taking advantage of it if you can.  There is nothing out there that will give you money for doing nothing.  So if you are thinking of taking advantage of the super co-contribution, here is the current proposed law:

  • You need to make personal contributions into your superannuation fund.  To be eligible for the full super co-contribution of 50 cents for every $1 with the maximum gift of $500, your total income must be less than $31,920 (lower threshold).  If your income is above this rate, you can still receive super co-contributions as long as your total income does not exceed the proposed higher threshold of $46,920.   The full $500 entitlement will be reduced for income between the lower threshold and higher threshold.
  • In addition, to be eligible for super co-contribution, at least ten per cent of your income must be from employment or from carrying on a business. What this means is you won’t qualify if you are not working.  You also need to be less than 71 years old at the end of the year to qualify.

The Tax Office has more information about this on their website.  There is also a calculator that will work out your entitlement. Unfortunately, the calculator only calculates the 2012 rates as the new proposed rates for the 2013 year will not be available until the legislation receives Royal Assent and becomes law. I have included some links from the ATO website below:

About Super co-contribution:  http://www.ato.gov.au/Individuals/Super/In-detail/Contributions/Super-co-contribution/?default=&page=1#About_the_super_co-contribution

Super co-contribution threshold:  http://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?default=&page=1

Super co-contribution calculator:  http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=superc_calc.xr4&go=ok

Monica Rule is the author of “The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Fund in plain English”.  Her advice is general in nature and readers should seek their own professional advice before making any financial decisions.