Financial Professionals: Estate Planning

Government Superannuation Co-Contribution for Low Income Earners

What is the co-contribution?

The co-contribution is a scheme where the Government makes additional contributions for low income earners who make personal contributions into their super. The maximum co-contribution of $1,500 was available for those earning $28,000 or less for the 2006/2007 financial year. For 2007/08 this has increased to $28,980. For every dollar of a person's assessable income and reportable fringe benefits over $28,980 the maximum co-contribution is reduced by 5 cents and phases out completely at the upper income threshold of $58,980 (or $58,000 for 2006/07). Individuals whose assessable income and reportable fringe benefits are $58,980 or greater are not entitled to a co-contribution. The lower and upper income thresholds are indexed by the increase in AWOTE

The minimum co-contribution is $20 (even if the personal contribution is less than $20).

The Government co-contribution is treated as a tax free component when paid into the member's super fund and is subject to normal preservation rules. From 1 July 2007 the government co-contribution was extended to allow self employed individuals to qualify for the co-contribution (previously this was limited to people who derived at least 10 percent of their assessable income and reportable fringe benefits as employees).

Who is eligible for the co-contribution?

The following criteria must have been met for an individual to be eligible for the co-contribution:

q        have made a personal superannuation contribution

q        have assessable income plus reportable fringe benefits in the income year less than the upper income threshold (i.e. $58,980 )

q        not be the holder of an eligible temporary resident visa

q        be less than 71 years old at the end of the income year, and

q        lodge a tax return.

How will the co-contribution be paid?

q        The co-contribution will be paid once the person has submitted their tax return.

q        It will be paid directly into a complying superannuation fund or RSA.

q        The co-contribution is treated as a tax free component.

q        The co-contribution is a preserved benefit and the normal preservation rules apply.

q        Earnings on the co-contribution form part of the taxable component.

Source: Zurich Australia

Where is the Government co-contribution paid if the intended recipient is deceased, retired or no longer has an eligible account?

An eligible account is a complying superannuation fund or retirement savings account that will accept the Government co-contribution and is not an 'insurance only account' or an account that has commenced paying a pension or annuity.

If the co-contribution was paid to an account that had commenced paying a pension it would cause an immediate commutation of the pension

The following rules apply when determining where the co-contribution is to be paid, depending on different circumstances:

Individual's circumstances	Government co-contribution or underpaid amount is to be paid to:
Deceased	their legal personal representative
Retired or no longer has an eligible account	the person
Eligible account has been nominated	the eligible account
One of more eligible accounts are open and they have not nominated which account it is to be paid into	In the following order: (1) The eligible account that has already received a co-contribution in the current financial year; (2) The eligible account that has received the greatest amount of eligible personal superannuation contributions in the most recent financial year; (3) The most recently opened account; (4) The account with the highest account balance; (5) Into the Superannuation Holding Accounts Account.

 Example of co-contribution calculation

John has assessable income and reportable fringe benefits of $30,000 from employment (his only income).

John's maximum co-contribution entitlement is:

        $1,500 - [0.05 (30,000 - 28,000)] = $1,400

He would need to make a non-concessional contribution of $933 (i.e. 1,400/1.5) to receive a co-contribution of $1,400 (i.e. $933 x 1.5). For this particular client, regardless of the amount of non-concessional contributions he makes, the co-contribution entitlement will only be $1,400.

Source: Kaplan Education Pty Limited