Co Contribution – is it worth it?

What is it?

The federal government gives away money (hello did you hear me – free money!) to anyone who makes a non-concessional (after-tax) contribution to their super fund, and who earns less than $51,021 a year (for the 2016/2017 year). The tax-free giveaway is officially called the co-contribution scheme.

 

 

How does it work?

You receive a tax-free super contribution from the federal government when you make a non-concessional (after-tax) contribution to your super account, subject to you satisfying a work test, an income test and an age test. These tests are explained further on.

If you earn $36,021 or less (for the 2016/2017 year), the federal government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year. For example, if you make a $1000 non-concessional contribution and your income is less than $36,021 (for the 2016/2017 year), then your super fund account receives a $500 tax-free contribution from the Government. If you make a $600 contribution, the Government pays $300 into your super fund. You following?

Work test – if you are aged 65 or over and plan to make super contributions you must satisfy a work test, which it to be gainfully employed for 40 hours in a 30 day period within the financial year in which a contribution is made. If you are under 65 the other test is that you must earn 10% or more of your income from eligible employment or 10% of your income from carrying on a business or a combination of both.

Income test – If you earn up to $36,021 assessable income then you may be eligible for the maximum co contribution. If your assessable income is between $36,021 and $51,021 the co contribution reduces on a scale and then is cuts out completely above $51,021. If your assessable income is more than this amount then you may wish to consider other strategies.

Age test – you must be aged under 71 at the end of the financial year in which you make your after tax contribution to be eligible for a co-contribution.

Who should contribute?

Anyone who meets the above criteria and has the funds available! In particular, women who often have a low super balance due to working part time or raising families. Remember that money contributed to super is preserved.

General Advice warning: This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions.