Want to make 100% return on your money in 2 weeks?

If you earn less than $62,000 a year, or your spouse or children earn less than $62,000 a year, then you, or your spouse, or child, have 2 weeks to potentially make a 100% return on your money when you make an after-tax super contribution.

Read on to find out how you can turn $1,000 into $2,000 (if your total income is less than $31,920 for the 2011/2012 year), or, say, $500 into $1,000 (if your total income is around $47,000) by taking action before the end of June 2012.

Act now to secure 100% return on your super contribution

If you want to make a 100% return on your money then you better be quick. For eligible Australians, when you make a non-concessional (after-tax) contribution to your super fund (up to $1,000), the Federal Government promises to match this amount dollar for dollar. You can also choose to make a smaller non-concessional contribution, and the Government will either match the smaller amount you contribute or pay a matching percentage of the contribution you have made, depending on the level of your income.

This free money is known as a co-contribution, and the co-contribution is tax-free.

If you are currently eligible, and if you wait until July 2012, you may then no longer be eligible for the co-contribution due to the introduction of a stricter income test. From 1 July 2012, thousands of Australians will no longer be eligible for the co-contribution due to the massive cut in the income thresholds, from an upper income threshold of $61,920 (for 2011/2012 year) falling to $46,920 (for the 2012/2013 year).

From July 2012, you will only be eligible for the co-contribution if your total income is less than $46,920. Also, from July 2012, the maximum co-contribution payment is set to halve, falling to $500 rather than $1,000. Despite these radical changes, you can still expect an impressive 50% return on your money (rather than 100%) from July 2012, but fewer Australians will be able to take advantage of the co-contribution scheme.

Read on for the co-contribution good news, and the bad news.

Are you eligible for the co-contribution?

I explain the co-contribution rules in detail in the SuperGuide article Cashing in on the co-contribution rules (2011/2012) but briefly:

• 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.
• 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
• 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).
• 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.
• your super fund cannot accept after-tax contributions, or receive co-contributions on your behalf, if you have not provided your tax file number to your fund.

The non-concessional super contribution must be recorded in your super account before 30 June 2012, and your ‘total income’ must be below a certain threshold to be eligible for the co-contribution for the 2011/2012 year. You can expect the co-contribution to reach your super account about 2 months after you lodge your 2011/2012 tax return.

Note: See the table at the end of the article for the co-contribution payment you can expect for different super contribution amounts, and different levels of income.

Remembering the co-contribution glory days

When the co-contribution scheme was originally introduced in July 2003, I believed (and I still believe), it was one of the more innovative policies introduced by a government as a means to encourage individuals to save more for retirement.

The concept was simple really. If you made a super contribution, the federal government would match your contribution – dollar for dollar, up to $1,000, when your annual income was below a certain amount. You received tax-free money as a reward for saving for retirement. Perfect!

In the first year of the co-contribution scheme being in operation, more than 600,000 Australians received a complimentary tax-free super contribution from the Government with an average amount of $540 per eligible taxpayer. In the second year, the number of Australians participating in the scheme doubled to 1.2 million recipients.

The co-contribution scheme has turned out to be one of the very few female-friendly superannuation policies. For example, during the 2003/2004 year, the co-contribution scheme’s first year, 63% of co-contribution recipients were female, and this gender trend has continued throughout the decade.

The predominance of female recipients to a means-tested co-contribution makes sense when you consider that women, on average, earn less than men and that women are more likely to be in part-time work than men.

So far, so good: we have a ground-breaking policy that not only encourages, but helps, those on lower incomes (especially women), to boost retirement incomes.

From an innovative $1,000 to a generous $1,500

From July 2005, the co-contribution offered by the government was increased to a more generous $1,500.

For every after-tax dollar you contributed to your super fund, you received $1.50, up to a maximum of $1,500, when your income was below a certain amount. In short, if you made a $1,000 contribution to your super fund you ended up with $2,500 in your super account.

Think about this for a moment. You received a guaranteed 150% return on your super money before you allowed for any investment return on your super contributions (when the money was invested by the super fund trustees).

Expanding the scheme to include small business people

The scheme was fantastic except for the fact that you had to be an employee to be eligible for the co-contribution scheme. This silly restriction automatically excluded full-time carers, including stay-at-home parents, and obviously self-employed individuals.

In July 2007, the government expanded the co-contribution scheme to include self-employed individuals but continued to exclude non-working Australians, such as carers and stay-at-home parents, from the scheme.

Indexing income thresholds is fair and equitable

Another sticking point for the co-contribution scheme was that the income thresholds were not being indexed in line with wage increases or price increases. In July 2007, the income thresholds were indexed in line with average wages (AWOTE) as part of an ongoing commitment to ensure the income thresholds reflected the real incomes of Australian lower income earners (see table below for a history of the movement in the income thresholds and the maximum co-contribution entitlement available).

Co-contribution income thresholds
Year	Maximum entitlement	Lower income threshold	Higher income threshold
2012-13	$500	$31,920	$46,920*
2011-12	$1,000	$31,920	$61,920
2010-11	$1,000	$31,920	$61,920
2009-10	$1,000	$31,920	$61,920
2008-09	$1,500	$30,342	$60,342
2007-08	$1,500	$28,980	$58,980
2006-07	$1,500	$28,000	$58,000
2005-06	$1,500	$28,000	$58,000
2004-05	$1,500	$28,000	$58,000
2003-04	$1,000	$27,500	$40,000

Source: ATO (www.ato.gov.au)

*subject to legislation being passed.

The beginning of the end for the co-contribution

In May 2009, in the wake of the Global Financial Crisis, the Federal Government ‘temporarily’ cut the maximum co-contribution payment available from $1,500 to $1,000 and ‘temporarily’ froze the income thresholds for assessing an individual’s eligibility for the co-contribution scheme.

In May 2010, the same decision-makers announced that they would permanently freeze the maximum co-contribution payment at $1,000 and confirmed the freezing of the income thresholds for the co-contribution for the 2010/2011 and 2011/12 years. In November 2010, these announcements became law.

Since July 2009, salary sacrificed contributions also count towards the co-contribution income test. What this change means is that individuals on higher incomes, seeking to access the co-contribution scheme, cannot use salary sacrificing (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.

In November 2011, the Federal Government further diluted the co-contribution policy by halving the maximum co-contribution payment from $1,000 to $500, and by slashing the upper income threshold from July 2012.

What do these latest changes to the co-contribution rules mean for Australians saving for retirement?

Generally speaking, middle Australia and women (who earn less on average compared to men) will suffer because of the cuts to the co-contribution scheme. You will receive a lower co-contribution amount than previously and over time you may be excluded from the co-contribution scheme simply because of cost of living adjustments to wages, and from a less-generous policy. For example, if you were entitled to the co-contribution during 2010/2011 year, and your income for 2011/2012 year has increased in line with CPI (inflation) rather than due to promotion or other type of pay rise, then you may no longer be entitled to the co-contribution.

	If your personal super contribution is:
	$1,000	$800	$500	$200
And your income is:	Your super co-contribution will be:
$31,920 or less	$1,000	$800	$500	$200
$34,921	$900	$800	$500	$200
$37,921	$800	$800	$500	$200
$40,921	$700	$700	$500	$200
$43,922	$600	$600	$500	$200
$46,922	$500	$500	$500	$200
$49,922	$400	$400	$400	$200
$52,922	$300	$300	$300	$200
$55,923	$200	$200	$200	$200
$58,923	$100	$100	$100	$100
$61,920	$0	$0	$0	$0

Table source: ATO (www.ato.gov.au)