Co-contributions - Boring name, big benefits

08/03/2012
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

There aren't many free lunches in life but the Federal Government's co-contribution scheme is about as close as it gets.

If you make an after-tax contribution to your super, the government matches that contribution dollar for dollar - up to $1,000.

How it works

The scheme works on a sliding scale. The less you earn, the more you get from the government. However, there are specific eligibility criteria that you must meet.

If you're at the lower end of the scale - for the 2011/12 financial year a total income of $31,920 or less - you are eligible for the maximum co-contribution of $1,000 if you make a $1,000 personal super contribution.

The co-contribution is reduced as your income increases and the scheme cuts out altogether at a defined upper income threshold - presently $61,920.

Contributions made from 1 July 2011 to 30 June 2012

 
And your total income is: If your personal super contribution is:
$1,000 $800 $500 $200
Your Super Co-contribution will be:
$31,920 or less $1,000 $800 $500 $200
$33,920 $933 $800 $500 $200
$35,920 $867 $800 $500 $200
$37,920 $800 $800 $500 $200
$39,920 $734 $734 $500 $200
$41,920 $667 $667 $500 $200
$43,920 $600 $600 $500 $200
$45,920 $533 $533 $500 $200
$47,920 $467 $467 $467 $200
$49,920 $400 $400 $400 $200
$51,920 $333 $333 $333 $200
$53,920 $266 $266 $266 $200
$55,920 $200 $200 $200 $200
$57,920 $133 $133 $133 $133
$59,920 $66 $66 $66 $66
$61,920 $0 $0 $0 $0
 

Changing rules

While the scheme will remain in place for the 2012/13 financial year, the government's co-contribution is likely to be less generous.

The government has proposed changes to the scheme that will reduce the super co-contributionfrom $1,000 to $500, from 1 July 2012.

The government also plans to reduce the number of members who are eligible, cutting the upper income threshold to those earning less than $46,920, compared to $61,920 this year.

Easy to do

You don't have to apply for a co-contribution simply make a personal after-tax contribution to your Mercer Super Trust account before 30 June 2012 and the tax office will calculate your co-contribution amount and deposit it into your super account.

To make an after-tax contribution to your account via BPAY, sign in to your account and click on BPAY under the Contributions heading to see your biller code and reference number.

Please note the Government places caps on both pre- and post-tax contributions to super (including salary sacrifice and employer contributions). Any contributions over the relevant caps are subject to extra tax.

Will I pay tax on the co-contribution?

The co-contribution is free of contributions tax and is returned tax free to you at retirement. However, any earnings on the co-contribution, while invested in your super fund, will be subject to concessional tax rates.

Please note the Government places caps on both pre and post-tax contributions to super (including salary sacrifice and employer contributions). Any contributions over the relevant caps are subject to extra tax.

How is the co-contribution paid?

At the end of each tax year all you need to do is lodge your tax return with the Australian Taxation Office (ATO). Your super fund will send the ATO information about your super contributions by 31 October and the ATO will then calculate the co-contribution to be paid to your super account.

Any co-contribution you are entitled to will generally be paid directly into the super fund your personal contributions were made to. The process generally takes 60 days and the ATO will notify you once the co-contribution has been paid to your super fund.

Speak with a financial adviser

If you are unsure whether contributing to your super is the best strategy for your savings, you should seek professional financial advice.

A financial adviser will take into account your short, medium and long term financial goals and your lifestyle needs before recommending an appropriate strategy for you.

For more information, refer to the Tax Office's website at ato.gov.au.

 

This information has been prepared by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of what action to take. 'MERCER' is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2012 Mercer LLC. All rights reserved.

 

LCA Nominees Pty Ltd ABN 61 008 204 939 AFS Licence #240571, as Trustee for Lutheran Super ABN 93 371 348 387.

This website is provided by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. The Trustee pays a fee for the provision of this service, however this fee is not conditional on you using this service or acting on the information or advice provided through this service.