The super co-contribution scheme is designed to help retirement savers build their super account balance by supplying an additional payment of up to $500 for personal super contributions.

The main goal of the payments is to increase the retirement savings of low and middle earners who make personal contributions into their super account.

Personal super contributions are the amounts you contribute to your super fund from your after-tax income. These contributions:

  • are in addition to any compulsory super contributions your employer makes on your behalf; and
  • do not include super contributions made through a salary-sacrifice agreement.

You need to pass the below two income tests to qualify for a co-contribution payment:

Total Income Test

Income thresholds for the co-contribution are as follows:

  • Lower threshold ($39,837 for 2020/21)
  • Higher threshold ($54,837 for 2020/21)

You will receive the maximum co-contribution of $500 if your total income is equal or less than the lower threshold. If your annual income is between the thresholds, the maximum amount of eligible co-contribution of $500 is proportionally reduced towards the higher threshold using the formula from the below example.

Example

In 2019/20, Steven who has an employment income of $45,000 makes eligible personal contributions of $3,000 to a complying superannuation fund. As his income of $45,000 exceeds the 2020/21 lower income threshold of $39,837 by $5,163, the maximum co-contribution amount is reduced by the income test to $327.92, as calculated below:

$500 − [($45,000 − $39,837) × 3.333%] = $500 − [$5,163 × .03333] = $500 − $172.08 = $327.92

10% Income Test

At least 10% of your total income must come from employment and/or carrying on a business. Income from a non-business partnership, interest, rent and lump sum payments are not eligible income under this test.

The following table shows if a person’s income is included in total income and / or the 10% tests.

Additional Conditions 

In addition, you are entitled to government superannuation co-contributions in an income year if you:

  • lodge your income tax return for the year of contribution;
  • are less than 71 years old at the end of the income year; and
  • you are not:
    • the holder of a temporary visa any time in the income year, or
    • at all times when you hold such a temporary visa during the income year, you are a New Zealand citizen or a former temporary resident.

From 1 July 2017, the additional conditions below must also be satisfied in order for you to be eligible for co-contribution in an income year:

  • your non-concessional contributions for the financial year corresponding to the income year must not exceed the non-concessional contributions cap for the financial year (for the year ending 30 June 2021 – $100,000); and
  • immediately before the start of that financial year, your total superannuation balance is less than the general transfer balance cap for that financial year (for the year ending 30 June 2021 – $1.6 million).

Once you lodge your annual tax return, the Australian Taxation Office (ATO) will decide if you are eligible for the co-contribution and will automatically pay you the correct amount into your super account. If you want your co-contribution to be paid into a particular fund, you will have to complete a superannuation fund nomination form and send this form to the ATO before lodging your annual tax return.

You can also request a direct payment to your personal account if you do not have eligible super account, because you have retired or were retired but returned to work or you are the legal representative of the super account holder who is deceased. 

Categories: Weekly Tax Update