If you have a spare $1000, you might consider making an extra contribution to your super fund. If your income is otherwise low, the Commonwealth government will give you up to an extra $500.
This policy, which has been around for a long time, encourages people with low incomes to save for their own retirement. The most efficient way to save for retirement is to use superannuation. But putting extra money into super is difficult if your income today is low. So, the Commonwealth government provides an incentive.
That incentive can represent an immediate return of 50% on your $1000 investment. $1000 is the maximum for which you can claim a co-contribution. The return comes in the form of an extra deposit that the government will make into your superannuation fund. So, you put in up to $1,000, and the government makes a co-contribution of up to $500.
If your income is below around $37,697, you will receive a full co-contribution of 50%, up to a maximum of $500. Income between $37.697 and $52,697 sees a falling rate of co-contribution being available.
Once your income exceeds $52,697, you cannot receive any co-contribution at all.
Between those two thresholds, the amount that you can receive varies on a sliding scale. ASIC’s Money Smart website provides you with a simple way to calculate how much co-contribution you would receive for a given level of income. You can view their calculator here (click the logo):
The co-contribution needs to be made before 30 June. So you have about a month from today in order to find and contribute the extra amount into super. There is potentially just one more catch – in keeping with the government’s philosophy of making sure that nothing to do with superannuation is straightforward. At least 10% of your total taxable income must be related to employment. ‘Employment’ can include running your own business. This rule exists to stop investors or landlords claiming a co-contribution. To claim the co-contribution, you need to be working for your income – at least a little bit.
Your $1000 will be classed as a non-concessional contribution from your end. This means that you cannot claim a tax deduction for the contribution. By the same token, the super fund will not pay tax on the contribution, meaning that the whole $1000 will be available to your fund to be invested. The co-contribution from the government is not taxed either.
Quite often, people do not realise that they qualify for the co-contribution. It might be that they are only working part-time, or have only worked for part of the year, such that their taxable income is relatively low. That is why we always consider eligibility for a co-contribution whenever we meet with clients. So, with the end of the financial year fast approaching, why not make a time to discuss this and other wealth creating strategies that you might implement over the coming three months.