Cashing in on the co-contribution rules (2014/2015 year)

Note: The co-contribution rules for the 2014/2015 year (and for the earlier 2013/2014 and 2012/2013 years) are very different from the co-contribution rules applicable for the 2011/2012 year. For your reference and convenience, we have retained the co-contribution rules for these previous years, at the end of this article.

The federal government is giving away money to anyone who makes a non-concessional (after-tax) contribution to their super fund, and who earns less than $49,488 a year (for the 2014/2015 year). The tax-free giveaway is officially called the co-contribution scheme.

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. I explain these three tests later in the article.

If you earn $34,488 or less (for the 2014/2015 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 $34,488 (for the 2014/2015 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.

Note: Although $500 in tax-free money is a great incentive to contribute to your super account, the government co-contribution is half of what you would have got if you made the non-concessional contribution in the 2011/2012 year.

How does the co-contribution scheme work?

If you earn more than $34,488, your co-contribution entitlement reduces by 3.33 cents for every dollar you earn over $34,488, until it cuts out at $49,488 (for the 2014/2015 year). For example, 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 $182, which potentially gives you a co-contribution of $318.

Note: The income levels for co-contribution eligibility should have been increased for the 2010/2011 and 2011/2012 years and 2012/2013 years, but the former ALP government decided to freeze the income thresholds for these three years, and the bad news is that the federal government has cut the upper threshold from the 2012/2013 year onwards. The long-term effect of these negative changes to the co-contribution scheme is that fewer Australians are eligible for the co-contribution.

Although the co-contribution scheme is a fantastic scheme, a major criticism that I have with the co-contribution policy is that those individuals raising children full-time, or caring full-time for sick or elderly relatives are not eligible for the co-contribution.

The co-contribution tax-free giveaway is subject to three main tests: what I call the co-contribution work test, the income test and the age test.

1. Co-contribution work test

For individuals to be eligible for the 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.

Note: If you’re aged 65 or over you must satisfy a second work test to be eligible for the co-contribution. In effect, if an individual is aged 65 or over (but under 71), they must meet two work tests to be eligible for the co-contribution. One work test enables an individual to make personal contributions to a super fund, and a second work test enables an individual to be eligible for the co-contribution scheme.

Work test one: If you are aged 65 or over and plan to make super contributions, then you must satisfy a work test. You must be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which the contribution is made.

Work test two: This test applies to all ages. You must earn 10% or more of their income from eligible employment, or 10% or more of their income from carrying on a business, or a combination of both. Australians of all ages must satisfy this second work test to be eligible for the co-contribution scheme.

2. Co-contribution income test

You must also satisfy an income test. The Government’s tax-free co-contribution is available for any person who receives total income from employment or self-employment and earns less than $49,488 a year in the 2014/2015 financial year, and makes a non-concessional (after-tax) contribution to their super fund. This income threshold is indexed each year in line with increases in average weekly earnings.

Note one: The co-contribution ‘total income’ threshold is assessable income, plus the value of any fringe benefits that you have as part of your salary package, such as a car PLUS any salary sacrificed contributions. Assessable income also includes bank interest and net capital gains from selling shares or property.

Note two: The co-contribution income threshold also includes salary sacrificed contributions. What this means is that individuals on higher incomes, seeking to access the co-contribution scheme, cannot salary sacrifice (that is, make before-tax super contributions to their super fund) to lower their income to a level that allows them to receive the tax-free Government co-contribution.

Important: If you run a business, your income, for the purposes of satisfying the income threshold, is reduced by any business deductions incurred in carrying on the business. For satisfying the 10%-plus work test (see co-contribution test number one earlier in the article), however, you are measured against your gross business income. This is a very important distinction that recognises that self-employed individuals often have net incomes (after deducting expenses) under $49,488 even though their gross business income may be well over the income threshold for the co-contribution.

3. Co-contribution age test

And finally, the age test: you must be under 71 at the end of the financial year in which you make your after-tax contribution to be eligible for a co-contribution.

TFN alert: Your super fund cannot accept after-tax contributions, or receive co-contributionson your behalf, if you have not provided your tax file number (TFN) to your fund.

The co-contribution payment process: in 3 steps

  1. Assuming you earn less than $49,488 (‘total income’) for the 2014/2015 year, you then make a non-concessional (after-tax) contribution to your super fund.
  2. You lodge your 2014/2015 tax return.
  3. Within 60 days, the Government pays the co-contribution into your super fund.

You can find more information about the contribution rules on the ATO website. You can work out your co-contribution entitlement by using the ATO co-contribution calculator. If you’re seeking the rules applicable for the 2013/2014 or 2012/2013 or 2011/2012 years then continue reading this article.

Co-contribution income thresholds^

Income year Lower income threshold Upper income threshold
2014/2015 $34,488 $49,488
2013/2014 $33,516 $48,516
2012/2013 $31,920 $46,920
2011/2012 $31,920 $61,920
2010/2011 $31,920 $61,920
2009/2010 $31,920 $61,920
2008/2009 $30,342 $60,342

^For the 2014,2015, 2013/2014 and 2012/2013 years, and future years, the co-contribution matching rate is 50% of the non-concessional (after-tax) contributions that you make, and also note that the maximum co-contribution that you can receive is $500.

Co-contribution rules for the 2013/2014 year

For the 2013/2014 financial year, the following co-contribution rules applied:

  • You receive a tax-free super contribution from the federal government when you make a non-concessional (after-tax) contribution. If you earn $33,516 or less (for the 2013/2014 year), the federal government pays $0.50 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 earn less than $33,516 for the 2013/2014 year, and you make a $1000 non-concessional contribution, 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.
  • If you earn more than $33,516, your co-contribution entitlement reduces by 3.33¢ for every dollar you earn over $33,516, until it cuts out at $48,516 (for the 2013/2014 year). For example, if you earn $40,000 and you make an after-tax contribution of $1,000, the Government’s maximum contribution of $1,000 is reduced by $216, which potentially gives you a co-contribution of $284. If you earn $40,000 in total income, then even when you make a non-concessional contribution of $568 (rather than $1,000) you’ll still receive a co-contribution of $284.
  • You must also satisfy an income test. The Government’s tax-free co-contribution is available for any person who receives total income from employment or self-employment and earns less than $48,516 a year in the 2013/2014 financial year, and makes a non-concessional (after-tax) contribution to their super fund. This income threshold is indexed each year in line with increases in average weekly earnings.
  • Note one: The co-contribution ‘total income’ threshold is assessable income, plus the value of any fringe benefits that you have as part of your salary package, such as a car PLUS any salary sacrificed contributions. Assessable income also includes bank interest and net capital gains from selling shares or property.
  • Note two:The co-contribution income threshold also includes salary sacrificed contributions. What this means is that individuals on higher incomes, seeking to access the co-contribution scheme, cannot salary sacrifice (that is, make before-tax super contributions to their super fund), to lower their income to a level that allows them to receive the tax-free Government co-contribution.
  • Important: If you run a business, your income, for the purposes of satisfying the income threshold, is reduced by any business deductions incurred in carrying on the business. For satisfying the 10%-plus work test (see co-contribution test number one earlier in the article), however, you are measured against your gross business income. This is a very important distinction that recognises that self-employed individuals often have net incomes (after deducting expenses) under $48,516 even though their gross business income may be well over the income threshold for the co-contribution.

Co-contribution rules for the 2012/2013 year

For the 2012/2013 financial year, the following co-contribution rules applied:

  • You receive a tax-free super contribution from the Federal Government when you make a non-concessional (after-tax) contribution. If you earn $31,920 or less (for the 2012/2013 year), the Federal Government pays $0.50 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 earn less than $31,920 for the 2012/2013 year, and you make a $1000 non-concessional contribution, 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.
  • If you earn more than $31,920, your co-contribution entitlement reduces by 3.33¢ for every dollar you earn over $31,920, until it cuts out at $46,920 (for the 2012/2013 year). For example, if you earn $40,000 and you make an after-tax contribution of $1,000, the Government’s maximum contribution of $1,000 is reduced by $269, which potentially gives you a co-contribution of $231. If you earn $40,000 in total income, then even when you make a non-concessional contribution of $462 (rather than $1,000) you’ll still receive a co-contribution of $231.
  • You must also satisfy an income test. The Government’s tax-free co-contribution is available for any person who receives total income from employment or self-employment and earns less than $46,920 a year in the 2012/2013 financial year, and makes a non-concessional (after-tax) contribution to their super fund. This income threshold is indexed each year in line with increases in average weekly earnings.
  • Note one: The co-contribution ‘total income’ threshold is assessable income, plus the value of any fringe benefits that you have as part of your salary package, such as a car PLUS any salary sacrificed contributions. Assessable income also includes bank interest and net capital gains from selling shares or property.
  • Note two:The co-contribution income threshold also includes salary sacrificed contributions. What this means is that individuals on higher incomes, seeking to access the co-contribution scheme, cannot salary sacrifice (that is, make before-tax super contributions to their super fund), to lower their income to a level that allows them to receive the tax-free Government co-contribution.
  • Important: If you run a business, your income, for the purposes of satisfying the income threshold, is reduced by any business deductions incurred in carrying on the business. For satisfying the 10%-plus work test (see co-contribution test number one earlier in the article), however, you are measured against your gross business income. This is a very important distinction that recognises that self-employed individuals often have net incomes (after deducting expenses) under $46,920 even though their gross business income may be well over the income threshold for the co-contribution.

Co-contribution rules for the 2011/2012 year

For the 2011/2012 financial year, the following co-contribution rules applied:

  • You receive a tax-free super contribution from the Federal Government when you make a non-concessional (after-tax) contribution. If you earn $31,920 or less (for the 2011/2012 year), the Federal Government pays $1.00 for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $1,000 a year.
  • For example, if you make a $1000 non-concessional contribution, your super fund account receives a $1,000 tax-free contribution from the Government. If you make a $600 contribution, the Government pays $600 into your super fund.
  • If you earn more than $31,920, your co-contribution entitlement reduces by 3.33¢ for every dollar you earn over $31,920, until it cuts out at $61,920 (for the 2011/2012 year). For example, if you earn $40,000 and you make an after-tax contribution of $1,000, the Government’s maximum contribution of $1,000 is reduced by $269, which potentially gives you a co-contribution of $731. If you earn $40,000 in total income, then even when you make a non-concessional contribution of $731 (rather than $1,000) you’ll still receive a co-contribution of $731.
  • You must also satisfy an income test. The Government’s tax-free co-contribution is available for any person who receives total income from employment or self-employment and earns less than $61,920 a year in the 2011/2012 financial year, and makes a non-concessional (after-tax) contribution to their super fund. This income threshold is indexed each year in line with increases in average weekly earnings.
  • Note one: The co-contribution ‘total income’ threshold is assessable income, plus the value of any fringe benefits that you have as part of your salary package, such as a car PLUS any salary sacrificed contributions. Assessable income also includes bank interest and net capital gains from selling shares or property.
  • Note two:The co-contribution income threshold also includes salary sacrificed contributions. What this means is that individuals on higher incomes, seeking to access the co-contribution scheme, cannot salary sacrifice (that is, make before-tax super contributions to their super fund), to lower their income to a level that allows them to receive the tax-free Government co-contribution.
  • Important: If you run a business, your income, for the purposes of satisfying the income threshold, is reduced by any business deductions incurred in carrying on the business. For satisfying the 10%-plus work test (see co-contribution test number one earlier in the article), however, you are measured against your gross business income. This is a very important distinction that recognises that self-employed individuals often have net incomes (after deducting expenses) under $61,920 even though their gross business income may be well over the income threshold for the co-contribution.
© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

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Comments

  1. Well… what a con! After thinking I satisfied all the requirements re hours and earning less than the required income, the co contribution was not 50 in the dollar but a paltry 15c in the dollar.!

    Made a spousal contribution to my husbands account and it was returned via post without notification from industry fund… not only that but in inside two years what was almost $300 was $120 when claimed given the money was dwindling into someone else’s pocket.. and these financiers recommend superannuation as the best way to save for retirement? I think not!

  2. Ian spencer says:

    Hi Trish
    Re Super Contributions
    If after tax contributions are made by an employee earning under $48k , can they be made from a joint account – where the other account holder earns in excess of the threshhold ? And will the govt contribute?
    And if one has a SMSF – ( husband/ wife beneficiaries)- can after tax contributions be made by the lower income earner ( sub 48k) into the SMSF and receive the govt contribution ? And can those after tax contributions come from a joint account ?
    Many thanks for all the great info & updates !

  3. Trish,
    I’m almost 64 drawing an allocated pension with $530,000 super and wife 6 years younger with only $27,000 in super. So I was going to transfer $200,000 to my wife so my Centrelink pension payment is higher fo 6 years. However one of the questions on the Centrelink pension application form (Income and Assets form) asks if I’ve given any money away in the last 5 years. Do I say YES or NO? if I say YES won’t they take it up as a gift and negate what I’m trying to Do ?

  4. Phillip says:

    Trish,
    My wife’s only source of income is investments in shares. She does not have an ABN, will she be eligible for govt contribution if she puts money into her super fund?

  5. Doug Andersen says:

    Hi,

    can you please confirm if there is a work test for the 2011/12 tax year i.e. you have to earn at least 10% of your assessable income from working for an employer or for yourself?.

    Also, are there any tests / requirements that define “self employment’?

    thanks
    Doug

  6. Hi Trish,

    Fabulous article thank you. For the 2010/11 year I received a co-contribution of $255 which means that the ATO assessed my income as $54,258. I receive income from 2 investment properties jointly owned with my husband. The total rental income (my share) from these is $21,533 but after expenses is only $2,247. My tax agent submitted the gross figure which must have bumped my income up from my taxable income of $33,519 but I have since found an article which says “The treatment of rental income for co-contribution purposes will depend on how the property is owned. If the property is owned individually, the gross rental income is included in the calculation of total income. However, if the property is owned jointly, the tax law treats this income as partnership income. Assessable income from a partnership includes net rental income ie after allowable deductions. If net rental income is negative, then the rental income is simply reduced to zero, that is, you cannot use the excess to offset against other types of income. Therefore, rental income from a property owned jointly is treated much more favourably for co-contribution purposes.” Do you agree with this? Has my agent made a mistake by submitting the gross rental income?

  7. Maree Pennington says:

    Hello Trish, I have been looking at my superannuation statements for 1/7/10 – 30/6/11 and have just noticed that I missed out on receiving the Government Co-contribution even though I met all the requirements and criteria and made a contribution on 05/01/11.

    Is it too late to claim it or lodge an appeal?

    Thanking you, Maree

    • Hi Maree
      The co-contribution payment is normally made after your super fund lodges the super fund’s member contributions information with the ATO. The information is lodged by super funds in late October 2011 and the payment should be made some time after that. The co-contribution for 2010/2011 year is paid in the following financial year. I suggest you contact your super fund to see if the payment was made, and if not, then contact the ATO on 13 10 20 (super hotline) and ask them about your co-contribution. I assume you have provided your tax file number to your super fund – if you haven’t, or your employer hasn’t, then the co-contribution won’t be paid.
      Hope this helps
      Regards
      Trish

  8. Hi Trish,

    Thanks for the useful and interesting website…

    I have a query on behalf of my wife, she is on low income. However to boost up her super, she sacrifices super to receive govt co-contribution. In 2010, she requested her employer for personal super contribution to be deducted from her after tax income in May end and in her salary slip on 03/06/10 reflected that contribution. However the employer deposited the contribution in July’10. She also made $1000 personal super contribution in the following year. So in summary, the super reported $2000 in 2011 instead of $1000 in 2010 and 2011 each. ATO told that she is not eligible for co-contribution in 2010 as the super fund reported the contribution in July, next fy. This came as a shock to her, as her intention was to make personal contribution in different financial year, but because of reason beyond her control she has been disqualified for a silly reason. I believe this is unjust, unreasonable or inappropriate, we discussed the matter with ATO and they understood and accepted the circumstances but ATO suggested they can’t review or do anything unless super fund changes the report. I am not sure if Super changes the report as the contribution was received in July. I would sincerely appreciate if you could guide us on how could we take up the matter as she not only lost govt co-contribution but also $1000 stuck in super than having in the pocket?

    I hope to receive your response soon,

    Thanks,

  9. Hi Trish,

    I am making extra payments in to my super fund (after tax). Could you please tell me what is my employers obligation to send this money on to my super fund. Is it monthly or quarterly?
    Thank you.

  10. Hello Trish
    I enjoy your articles very much and have been looking to find
    the situation… If a person is under the $18200 self employed you don’t lodge a tax form.
    If this is the case can you not receive the co contribution even though you have made contributions to your super.
    Or do you lodge a form (pay an accountant ) to be eligible. As you see I am not sure how this would work. I hope I have not missed this discussion in another article.

    Thank you

    PS.the threshold is higher so that’s the bonus and no Co contribution.

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