The Superannuation Co-contribution Scheme started in 2003/04 to encourage us to make personal contributions to superannuation. It was targeted at low to middle-income earners and has been improved progressively since then.
In 2017-18, more than 405,000 Australians claimed almost $130 million in co-contributions. Lots of people are taking advantage of this opportunity.
Who is eligible to receive the co-contribution?
In the 2019-20 year, if you earn an income of up to $38,564 you can qualify for the maximum co-contribution. (Income = assessable income plus reportable fringe benefits.) The co-contribution reduces by 3.333c in the dollar for each dollar of income over $38,564 and cuts out when your income reaches $53,564.
To be eligible to receive the co-contribution you need to have a total superannuation balance of less than $1.6 million and have not exceeded your non-concessional contributions cap for that financial year.
Non-concessional contributions cap, what the?? Put simply, it means as long as you’re not putting more than $100,000 of your own money into superannuation on top of what your employer adds, you will be eligible as long as you meet all the other requirements.
The modern family
Most of us are in a similar position as far as working families go. Commonly, one partner will work full-time and the other will work part-time or casual while caring for kids and trying to keep the house in order. Generally, the partner who has reduced their workload also has a reduced income therefore, their super balance grows at a slower pace. If this partner has an income of less than $38,564 it’s a great opportunity to boost their balance with the benefits of the co-contribution scheme. To claim the full benefit you up can make a personal contribution of $1000 annually and the government will contribute $500 to your super fund. Hooray!
The co-contribution is based on each individuals income so if one partner’s income is over the cut off of $53,564 this has no bearing on the other partner’s eligibility.
A gift that will last a lifetime
Here’s a chance to give your children a unique gift.
As soon as they start work they could qualify for the co-contribution. But with retirement a long way off and other priorities (like having a good time) they are unlikely to want to part with $1,000 to pay into superannuation.
But what if you contributed it for them?
Assuming your son or daughter is 20 years old and earns less than $38,564, the government would match your contribution with $500. If you repeated this gift for five years and his super earned 7.5% he would have an extra $8,700 in savings. The power of compound interest means that by the time he reaches age 60, he would have an extra $109,000 in superannuation. Impressive Huh!
If you’re self-employed
The co-contribution is also available to self-employed Australians who earn at least 10% of their total income from employment. You must make a personal contribution without claiming a tax deduction for it. The same rules and dollar amounts apply to self-employed people as individuals for eligibility.
If you haven’t already taken advantage of this generous option, get in touch to learn how you might benefit from the super co-contribution scheme – for yourself or your loved ones.
Thanks for taking the time to read this post, if you have any question or would like to make a comment please feel free.
This article is for information purposes only and does not provide advice in any form. It does not take into account any person’s objectives, financial situation or needs.
Braeside Wealth and its advisers are Authorised Representatives of Fortnum Private Wealth LTD
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