Don’t earn much? You can still bump up your super balance by taking advantage of the government’s co-contribution scheme. Even though it’s less generous than it was last year, it’s still money for nothing if you are eligible.
Here’s how it works. If you earn $31,920 or less, you will receive a tax-free contribution when you make a non-concessional (after-tax) contribution to your super account. This is, of course, provided you satisfy work, income and age tests – but more about those later.
If your assessable income is $31,920 or less, the federal government will pay 50 cents for every dollar you contribute to your super fund in after-tax dollars, capped to a maximum of $500 per year. That means, if you make a $1,000 non-concessional contribution, your super fund receives a $500 tax-free contribution from the government. If you make a $600 contribution, the government pays $300 into your super fund.
If you earn more than $31,920, your co-contribution entitlement reduces by 3.33 cents for every dollar you earn over $31,920. This cuts out at $46,920. So if you earn $40,000 and you make an after-tax contribution of $1,000, the government’s maximum contribution of $500 is reduced by $264. This potentially gives you as co-contribution of $236.
Eligibility for the superannuation co-contribution scheme
You must earn 10% or more of your income from eligible employment, or 10% or more of your income from carrying on a business, or a combination of both. You must comply with the work criteria and you must be under 71 at the end of the financial year in which you make your after-tax contribution to be eligible.
To find out more, talk to your financial adviser, super fund or check out the ATO website.
Article updated 24/07/2012