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Free money from the Government is a pretty rare thing and most Aussies would be willing to go a bit out of their way to try and get some, but one of the easiest routes to those extra bucks is often overlooked.
One of the simplest ways is to invest a few extra dollars into your super account and take advantage of the Government’s co-contribution scheme.
Super co-contributions: A match for your money
The super co-contribution scheme is designed to help savers build their retirement account balance by providing an additional payment from the Government (up to $500) for super contributions you make yourself.
The scheme aims to boost the retirement savings of low and middle income earners who make personal (after-tax) contributions into their super account.
The actual amount you receive from the Government depends on your income and the size of your personal super contribution.
In previous years the co-contribution was more generous, but from 1 July 2012 the maximum entitlement was frozen at $500. The minimum co-contribution amount you can receive is $20 and payment amounts are rounded up to the nearest multiple of five cents.
This table outlines the income thresholds and co-contribution entitlements for previous years.
Co-contribution income thresholds
| Year | Maximum entitlement | Lower income threshold | Higher income threshold |
|---|---|---|---|
| 2019/20 | $500 | $38,564 | $53,564 |
| 2018/19 | $500 | $37,697 | $52,697 |
| 2017/18 | $500 | $36,813 | $51,813 |
| 2016/17 | $500 | $36,021 | $51,021 |
| 2015/16 | $500 | $35,454 | $50,454 |
| 2014/15 | $500 | $34,488 | $49,488 |
| 2013/14 | $500 | $33,516 | $48,516 |
| 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
Note: It’s worth remembering the Government’s co-contribution is not taxed when it is paid into your super account and you don’t have to include it in your tax return.
How does the scheme work?
Case study
Mario works as an administrative assistant for a charity and his annual salary is $34,000. He meets all the requirements to be eligible to receive a co-contribution payment from the Australian Government.
From his take home pay, Mario makes a personal contribution of $35 each fortnight into his super account. These contributions totalled $910 during the 2019/2020 financial year.
With this personal super contribution, Mario is eligible for a co-contribution amount of $455.
The ATO will pay $455 directly into Mario’s super account between November 2019 and January 2020.
The ATO has a Super Co-Contributions Calculator you can use to check if you are entitled to a co-contribution and how much you are likely to receive. All you need is information about your income (including any fringe benefit amounts) and personal super contributions. If you have business income, you will need to provide the amount of business-related deductions.
Co-contribution scheme: Do I qualify?
To ensure the Government doesn’t give away too much free money, it has set some eligibility criteria for the co-contribution scheme. You receive a payment only if you have:
- made eligible personal super contributions during the financial year
- pass two income tests (income threshold and 10% eligible income test – see below for more information)
- are aged less than 71 at the end of the financial year
- are not a temporary visa holder
- have lodged your tax return for the relevant financial year.
Note: From 1 July 2017, the Government added two new eligibility criteria. You are ineligible for the co-contribution payment if you have a Total Superannuation Balance of more than $1.6 million (in 2018/2019 and 2019/2020) on 30 June of the previous financial year, or you have gone over your non-concessional (after-tax) contributions cap during that particular financial year ($100,000 in 2018/2019 and 2019/2020).
Personal super contributions: What contributions are eligible?
Personal super contributions are amounts made from your after-tax or take home pay and are in addition to any Superannuation Guarantee (SG) amounts made by your employer, but do not include salary sacrifice payments.
Your personal super contributions can be made either as a single lump sum or as payment spread throughout the financial year. The total amount contributed for the year is used to calculate the co-contribution, so you need to ensure your personal contributions reach your super fund before 30 June each year to ensure they are counted by the ATO for that financial year.
If you have claimed a tax deduction for your personal super contributions (for example, if you are self-employed and make your own super contributions and claim them as a deduction in your income tax return), you will not be entitled to a co-contribution payment for those personal super contributions.
Watch the income test limits
As noted above, super fund members need to pass two income tests to qualify for the co-contribution.
Income test 1
The first test is your total income for the financial year must be under the higher income threshold ($53,564 in 2019/2020), while the lower threshold to receive the maximum co-contribution amount is $38,564.
From 2012/2013 onwards, when your total income is equal to or under the lower threshold and you make personal contributions to your super account, you receive the maximum co-contribution of $500. If your income is between the two thresholds your co-contribution amount tapers away as your income increases, up to $0 when you income goes over the higher income threshold.
Note: The ATO works out your total income for the co-contribution purposes by adding together your assessable income and reportable fringe benefits for the financial year, plus any extra super contributions made by your employer over their compulsory contributions (reportable employer super contributions). Any allowable business deductions are then taken away from the total.
Income test 2
Under the second income test for the co-contribution, 10% or more of your total income must come from employment and/or carrying on a business. This includes salary and wages, business income as a sole trader or partnership and director fees.
Income from a non-business partnership, interest, rent and dividends, or employment termination and lump sum payments are not eligible income under this test.
Under the 10% eligible income test, your total income is not reduced by any allowable business deductions to ensure people who are self-employed are not disadvantaged during a low income or profit financial year.
Tips and traps for the co-contribution
There are a couple of traps to be wary of when it comes to the co-contribution:
- Keep your Total Superannuation Balance (TSB) below the threshold. If your TSB at 30 June of the year before the financial year in which you make your contributions is greater than or equal to $1,600,000, or you go over your annual non-concessional (after-tax) contribution cap during the relevant financial year, you will not be eligible for a co-contribution.
- Watch your personal super contributions. To be eligible for the co-contributions your personal super contributions must not be claimed as income tax deductions. Previously this tax deduction was only available to self-employed people, but following the 2017 reforms to super, all taxpayers can now claim their super contributions as tax deductions, so you need to take care in this area.
- Ensure your super fund has your TFN. It’s important to check if your super fund has your tax file number (TFN) as your super fund cannot accept co-contribution payment if it does not hold it.
- Lodge your income tax return. The ATO uses your tax return to work out your total income to determine eligibility for the co-contribution, so if you don’t lodge a return, you may not receive the right – or any – amount of co-contribution. This is particularly important if your income is from sources other than normal employment such as a partnership or director fees.
- Don’t go over your non-concessional cap. You will not qualify for a co-contribution if you have exceeded your non-concessional (after-tax) contributions cap during the financial year ($100,000 in 2019/2020, while the 3-year bring-forward cap is $300,000).
Getting the money: How the co-contribution is paid
Making things easy, the ATO does everything for you when it comes to a co-contribution payment. Once you lodge your annual tax return, it decides if you are eligible and automatically pays the correct amount into your super account.
Payment is normally between November and January for personal contributions made in the previous financial year. The super fund credits the payment to your super account and it appears on your next member statement.
Generally, the ATO pays the co-contribution directly into the super fund which received your personal super contributions. If you want your co-contribution paid into a particular fund, you need to complete a Superannuation fund nomination form and send it to the ATO before lodging your annual tax return.
You can also receive your co-contribution payment directly if you have retired (either by reaching your preservation age or due to permanent incapacity or invalidity) and no longer have an eligible super account that will accept the payment. To request a direct payment you need to complete an Application for payment of ATO-held superannuation money or lodge a request using the online myGov portal.
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