Did you know that you can increase the amount of super in your account, by having the government match 50% of whatever after-tax contributions you deposit into your account? This is known as a government superannuation co-contribution.
There are many ways to contribute additional funds to your superannuation account, and boost your retirement savings. And why wouldn’t you try to make sure your retirement is as comfortable as possible by adding to your super balance?
There are a number of ways to boost your super fund, before and after tax. These methods include salary sacrifice, member voluntary contributions, and non-concessional contributions, to name a few. Check out the average super balances by age to see how your balance compares to others your age and whether you need to do any catching up.
How does a government superannuation co-contribution actually work?
This is an after-tax super contribution that the government will make on your behalf, if you are a low to middle income earner and meet certain eligibility requirements. When you lodge your tax return, the government will calculate the amount you are eligible to receive. Then, they will deposit the government superannuation co-contributions into your account.
Why should I consider after-tax contributions in general?
If you’re a low to middle income earner, it pays to put a little extra in your superannuation where possible. The further you are from retirement age, the more compound interest you will earn on that amount, even if it’s as little as $50! By the time you reach retirement age, after-tax contributions can ensure your balance is much healthier. What’s more, if you meet the eligibility criteria, the government superannuation co-contribution will become available, meaning you get even more bang for your buck.
One of the great things about the government co contribution is that it’s not a reportable superannuation contribution meaning you don’t have to report it or do any paperwork to receive the benefit, you just need to Bpay or EFT the funds into your account and if you meet the eligibility criteria then the government will make the contribution after you’ve completed your tax return.
Who is eligible for government superannuation co-contributions?
Only low and middle income earners are eligible to receive government superannuation co-contributions. That means you’ll need to earn less than $57,016 in the 2022/23 financial year to be eligible. There are also additional eligibility requirements that you must meet.
For example, you:
- Must make an after-tax contribution to your super fund
- Cannot claim a tax deduction for that contribution
- Must lodge your tax return
- Must receive at least 10% of your annual income from eligible employment or business revenue
- Cannot be older than 70 at the end of the relevant financial year
- Must have less than $1.7 million in your superannuation account at the end of the last financial year
- Cannot have exceeded your non-concessional contributions cap
- Cannot have held a temporary visa during the financial year.
If you tick all of these boxes, it’s likely that you’re eligible to receive a government superannuation co-contribution.
Mary is thirty five and earns $42,000 in the 2022/23 financial year, from her fulltime job. She makes an after-tax contribution to her superannuation account of $250 and does not claim a tax deduction for that contribution. She lodges a tax return and is an Australian citizen, having resided in Australia for that financial year. Therefore, Mary is eligible to receive a government superannuation co-contribution.
There are a few things to think about before beginning your salary sacrificing superannuation agreement.
– You must be wary of exceeding the concessional contributions cap. If you do go over the cap of $27,500, excess contributions are included in your assessable income and will be taxed at your same marginal rate, subtracting a 15% offset. It’s important to remember that your SG contributions also count towards your concessional cap for the financial year, along with personal contributions.
– You may be required to pay Division 293 tax, if your income is over $250,000 for the financial year. This will place an additional tax of 15% on some of your contributions. Therefore, it’s essential that you consider your expected annual income when deciding whether or not to establish a salary sacrifice agreement.
– You’ll be receiving less money in your take home pay each week. It’s important to ensure that you do not overcommit yourself financially, to your salary sacrifice agreement.
Ajay is fifty and earns $98,000 in the 2022/23 financial year from his full time employment. He makes an after tax contribution of $300 and claims a tax deduction for this amount. He lodges a tax return and is an Australian citizen, having resided in Australia for that financial year. His superannuation balance is about $1.8 million. Unfortunately, Ajay is not eligible to receive a government superannuation co-contribution because:
- His income is over the threshold
- He claimed a tax deduction for his after-tax contributions
- His superannuation balance is over $1.7 million.
How much could I receive from a government superannuation co-contribution?
The amount that you receive will depend on how much you have deposited into your superannuation account as an after-tax contribution. The government will match your contributions, 50 cents for every dollar that you contribute, up to $500. Therefore, the maximum amount you can receive from the government is $500.
This table below shows how much you can expect to receive if you earn under $42,016, depending on how much you deposited into your superannuation account after tax.
AFTER TAX CONTRIBUTION
It’s important to keep in mind that, if your income is between the income tax thresholds, your maximum entitlement reduces by 3.333 cents for every dollar that your total income is over the lower income cap. If your total income is equal to or greater than the higher income threshold, you will not be eligible to receive a government superannuation co-contribution.
Take a look at this table to see how government superannuation co-contributions are scaled, assuming you contributed $1,000 after tax.
FINANCIAL YEAR INCOME
Up to $42,016
Important facts you need to know about government superannuation co-contributions.
It’s important to note that government superannuation co-contributions, as well as income tax thresholds, may change each financial year. This is why it’s important to keep up to date and be well informed about superannuation news and updates.
You do not have to apply for government superannuation co-contributions. That’s because the payments are processed when you complete your tax return, and the Australian Taxation Office sees that you have made eligible after-tax contributions.
The government will pay the amount directly into your superannuation account. If you have closed your account during this time, the money will be redirected to the ATO, or redirected to your new account with your new fund.
Want to know more about government superannuation co-contributions?
If you want to know more about government co-contributions, or anything superannuation, head over to Review My Super. We have a wide range of resources, as well as professional financial advice available. Simply get in touch with us for more information.