How to Top Up Your Superannuation with Government Help
When it comes to securing your financial future, superannuation plays a crucial role. But did you know that the Australian Government can help you boost your super savings if you earn below certain income thresholds The Government Co-contribution Scheme offers a fantastic opportunity for low to middle-income earners to enhance their retirement savings while benefiting from tax concessions. In this guide, well explain how the scheme works, the eligibility criteria, and some strategic considerations to make the most of this opportunity.
How the Government Co-contribution Scheme Works
If you make personal after-tax contributions to your superannuation account and meet the eligibility requirements, the Australian Government may also contribute to your super. This additional contribution, known as a co-contribution, aims to encourage low to middle-income earners to increase their retirement savings.
Eligibility Requirements
To qualify for the co-contribution, you must: Be under the age of 71 at the end of the financial year. Meet the income thresholds. To receive some level of co-contribution, you must earn $60,400 or less annually. The maximum co-contribution of $500 applies if you contribute $1,000 and earn $45,400 or less. A tapered co-contribution applies for earnings between $45,400 and $60,400. Have at least 10% of your income come from eligible employment or carrying on a business. Lodge your tax return for the relevant financial year. Ensure your super fund is eligible to receive co-contributions. Note that unfunded public sector schemes, defined benefit interests, and insurance-only accounts may not qualify.
Benefits of the Co-contribution Scheme
Boost Super Savings: For every $1,000 you contribute, you could receive up to $500 from the government, significantly increasing your retirement savings. Tax-effective Growth: Investment earnings within super are taxed at a maximum of 15%, much lower than marginal tax rates. Flexibility: You can choose to nominate a specific super fund to receive the co-contribution or let the ATO direct it based on your account details.
Example: Ryans Co-contribution
Tom, aged 40, earns $35,000 annually and decides to contribute $1,000 to his super. As a result, he qualifies for the maximum co-contribution of $500. His total investment increases to $1,500, and future investment earnings are taxed at 15%, saving him additional tax compared to investing outside super at his marginal rate of 32.5%, including the Medicare levy.
Timing and Process
- Contribution: Make your personal after-tax super contribution by 30 June of the relevant financial year.
- Tax Return: Lodge your tax return for the year, ensuring all income and contributions are accurately reported.
- Co-contribution Payment: The ATO determines eligibility and pays the co-contribution directly into your super account. Payments may take several months after the end of the financial year.
Strategic Considerations
Maximise Contributions: Contribute at least $1,000 after tax annually to qualify for the maximum co-contribution. Coordinate with Other Contributions: Consider combining the co-contribution strategy with salary sacrifice or personal deductible contributions to further boost your super savings. Super Fund Eligibility: Confirm your fund can accept co-contributions, especially if you have defined benefit or insurance-only accounts. Regular Reviews: Evaluate income levels annually to ensure ongoing eligibility for the scheme.
Acton Wealth can guide you through maximising these benefits of your Superannaution, reach out today!
