Turn zero dollars into $2250 in four steps

I don’t normally suggest ‘easy money’ strategies. I’m often sceptical about the motives of the individuals suggesting such strategies, which means I don’t like being boxed in that same category. In this instance however, I am going to explain a Government-backed strategy that means, if you’re eligible, you’re four steps away from turning zero dollars into a $2250 super nest egg.

The story begins with the Federal Government’s recent $900 tax bonus. You can turn that cash into a bigger bonus – up to $2250 – by choosing to contribute the tax bonus to your super fund.

If you earn less than $30,342, and you make a non-concessional (that is, after-tax) contribution to your super fund, the Federal Government will co-contribute up to $1500 as a tax-free bonus. For example, if you make a $900 after-tax contribution, the Government pays $1350 into your super account. If you make a $1000 contribution, the Government kicks in $1500.

If you earn more than $30,342 however, the Government will still contribute $1.50 for some of the dollars that you contribute but not as much as $1500. For example, if you earn $45,000, and you contribute your $900 tax bonus to super, then the Government co-contribution is a maximum of $767. In this instance, you can turn zero dollars into $1667. If you earn $45,000 and contribute $1000, then the Government still pitches in the same amount – $767.

So, you start with nothing. In four steps you can receive up to $2250.

1. The Government pays you $900 as a tax bonus payment.
2. Assuming you earn less than $60,342 for the 2008/2009 year, you then contribute the $900 tax bonus payment to your super fund.
3. You lodge your 2008/2009 tax return
4. Within 60 days, the Government pays the co-contribution into your super fund.

Note: The co-contribution scheme is available to any employed or self-employed person who has an adjusted taxable income of less than $60,342. Adjusted taxable income allows for fringe benefits and a few other items. You also must be under the age of 71 as at 30 June 2009. I explain how the co-contribution works in my article ‘Cashing in co-contributions – free, and tax-free’.

You can work out how much co-contribution you’re entitled to by using the ATO’s co-contribution calculator on the ATO website. Visit www.ato.gov.au/super and click on the pink pig.

Related articles:

1. Changes to co-contribution rules kill salary sacrificing strategy
2. Cashing in on the co-contribution rules (2010/2011 year)
3. Budget changes hit hard for super savers
4. Co-contributions: Can I claim the tax-free bonus as a property investor?
5. Co-contributions: Can I claim the tax-free bonus for the financial year that I retire?