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Written By Ivan Fletcher – Senior Adviser
As we approach the end of the tax year it’s time to start thinking about superannuation strategies that you can use to your advantage. This first one is what I call a ‘free hit’.
Target Market – Low to Moderate income earners (income between $39,837 and $54,837)
By making a personal contribution up to $1,000 you may receive a government co-contribution up to $500. This equates to a 50% return on your money and is still one of the more effective super strategies available.
- Only personal ‘non-concessional’ contributions qualify (ie not tax-deductible)
- The maximum matching rate is 50 cents for every $1 of eligible personal super contributions
- The maximum benefit this year is $500 for a $1,000 personal contribution
- The maximum benefit applies if your income is under $39,837
- The benefit cuts out if your income is above $54,837
You will be eligible for the super co-contribution if you can answer yes to all of the following:
- You made one or more eligible personal super (non-concessional) contributions to your super account during the financial year
- You pass the two income tests described below
- Income Threshold Test – your income (including fringe benefits, and salary sacrifice, etc) is under the higher threshold of $54,837
- 10% Eligible Income test – 10% or more of your total income must come from employment-related activities, carrying on a business, or a combination of both
- Your Total Super Balance (including Pension accounts) is less than $1,600,000 at the beginning of the financial year).
- You are less than 71 years old at the end of the financial year (30/6/21)
- You did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
- You lodge your tax return for the relevant financial year
Income Calculation – Includes
- personal super contributions
- employment and business income (net), including partnership distribution
- any reportable fringe benefits amounts
- any reportable employer super contributions (above mandatory SG)
- any other income (example – investment income)
How To Calculate And Maximise Your Benefit
This is made very easy for you by the following Government Website which calculates your benefit for you and how much you need to put in. Remember to include any fringe benefits and any Salary sacrificed income in your income figure as well as any other taxable income.
The amount you put in yourself as a personal non-concessional contribution needs to be double the amount of your potential co-contribution benefit.
If your income is under the lower threshold of $39,837 you can qualify for the maximum benefit of $500 co-contribution. You would need to put in double the con-contribution amount yourself (ie $1,000) as a personal contribution to gain the benefit.
If your income is between the two thresholds ($39,837 and $54,837), you may qualify for at least a partial government co-contribution. The benefit reduces from the maximum benefit of $500 by 3.33 cents for every dollar you earn over $39,837 until it cuts out at $54,837.
Example – If your income (for the year) is $42,000, your maximum benefit is $428. You would therefore need to contribute $856 to qualify for your full entitlement.
When Will You Receive The Benefit?
The ATO will calculate your entitlement once you have lodged your tax return for the tax year and make the payment to the super fund that you made your personal contribution to.
- Make sure your contribution is a personal ‘non concessional’ contribution.
- You cannot claim a tax deduction for this contribution.
Remember this when your super fund sends you a blank form offering for you to claim a deduction (sometime after 30 June). Note this to your tax agent when completing your tax return (to make sure they don’t try and claim the deduction on your behalf)
- Even if you borrowed the money from say a home loan at 3.0% to fund a contribution of $1000, the interest cost for one year would be $30 compared to a maximum potential benefit of $500. You could then pay the loan off over the next year.
- If you retired this year and your income is lower than normal or if you are now only working at more modest levels than you once did, this could also apply to you.