Get in before 30 June for Government Co-Contribution Bonus
As we approach the end of the financial year it’s time to think about whether you are eligible for the Government Co-contribution Scheme. This is a scheme designed to encourage low to middle income earners to make their own (after-tax) contribution to super and in return the Government provides you with bonus.
Government Co-Contribution: A $500 Bonus!!!
The Government will match each $1.00 dollar you voluntarily contribute to super (on an after-tax basis) with $0.50 of their money, up to a maximum of $500 per financial year.
You contribute $1000, the Government contributes $500
You are eligible if your assessable income is below $52,697 this tax year (2018/19)
The major eligibility requirement is your assessable income (see below for the definition) for the current financial year. If your assessable income is below $37,697, then you are eligible for a bonus up to $500.
If your income is between $37,697 and $52,697 you are still eligible for $0.50 for each $1 you contribute, but the maximum bonus available will be reduced, finally running out when your income is above $52,697.
If you would like to calculate the minimum amount you need to contribute to maximise your Government Co-contribution you can visit the Government’s MoneySmart Co-contribution Calculator
Other eligibility requirements:
· Make personal after-tax (non-concessional) contributions to your super (salary sacrifice, superannuation guarantee and personal tax-deductible super contributions don’t count)
· Receive at least 10% of your assessable income from employment or self-employment activities
· Lodges an income tax return
· Have given your tax file number to your super fund
· Be less than 71 years old at the end of the financial year
· Have not been a temporary resident of Australia for any part of the financial year
· Have a total super balance less than the transfer balance cap ($1.6m for the 2017/18 year) at the end of 30 June of the previous financial year.
Full details on eligibility can be found at the ATO Super Co-contribution website.
No tax payable on these contributions
These contributions are paid with after tax money. Since you’ve already paid income tax on this money they don’t charge you any extra tax when its put inside your super fund. When you come to withdraw this money in retirement it will come out tax-free (though for many of us this is a little while away). While any investment returns on these funds are taxed at the concessional superannuation tax rate of a flat 15%.
What if I need the money back?
Let’s be clear about this, money you put into super now, you can’t get back until you are over age 65 or retired (age limits also apply). Short of drastic circumstances …… death and the like, this money is locked away for your retirement savings. So don’t put your emergency cash or your holiday money into your super fund unless you are prepared to wait a fair while for that holiday. That said, the ‘locking away’ of your retirement savings is one of the best features of our super system, in return for some pretty generous tax concessions we are forced to be disciplined so that the money is there when we need it in retirement.
Is there a limit to how much I can contribute?
Let’s say your income is $41,000. You go to the calculator to calculate that if you make a contribution of $720 it will make you eligible for a maximum bonus from the government of $360. What happens if you don’t put in $720, instead you put $800 or $900 or even $1000? ….
Nothing much really. If the maximum you are allowed to receive in Government Co-contribution payments is $360, then you will paid $360 irrespective of how much you contribute above the $720.
If you find your assessable income hard to calculate and you have the funds available then some people decide to make $1000 contribution just to make sure that they get every dollar that they might qualify for. Yep you lock away the $1,000 until retirement, but its growing and you won’t miss out of a cent of Government help you might be entitled to.
Now let’s be a little bit sensible and remember there are caps on contributing to super. The cap for this type of personal contribution in the 2017/18 financial year is $100,000, but for most of us eligible for the Government Co-contribution we can probably rest fairly easy there.
How do I make this contribution?
You need to visit your super fund’s website. There are many ways to make this contribution, they may have direct electronic funds transfers, you might be able to arrange for your employer to contribute it or even BPay it (cash deposits are not usually accepted these days). If using your employer to make this contribution you might need to organise this well in advance to confirm that their payment will be made before the cut off day. EFT and BPay usually have special instructions and personalised reference numbers that you need to quote to make sure they know which $1000 came from which member and chances are you might need to fill in a form.
Make sure you don’t leave this to the last day of the financial year, apart from trying to navigate your way through the busiest day of the call centre you need to allow time for the money to clear the account and get into your super fund before the 30 June.
How do I claim the money I am owed?
Relax, it will all be done for you. Provided you are eligible, have made your contribution to the super fund before the end of the financial year, the super fund know your tax file number and you lodge a tax return this will all happen automatically.
The super fund reports back to the ATO which of their members have made contributions and once you have lodged your tax return they will automatically deposit this money into your account. Now you do need to be a bit patient. In the past those who lodge their tax returns early, say in August, find that they don’t get their payment until the following February. Don’t worry it will arrive.
Is it a once off?
The Government Co-contribution is on the table each and every year and looks to be for the foreseeable future. It does pay to check this stuff out each year around this time to check whether the rules have changed.
Is it really worth it?
Now let’s not pretend that the Government Co-contribution will make you a millionaire, but if you are in the eligible income bracket and do it each year over an extended period of time, it could make a noticeable difference at retirement. And as a financial planner there are very few if any schemes or ventures that can give you a guaranteed 50% tax-free nearly instantaneous return on your investment, well none that I would be happy to recommend. Yep it’s limited to a maximum of $500 per annum, but every little bit helps over the long term for retirement.
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