The super co-contribution is a tax-free bonus from the government to help people on low to middle incomes boost their super.

You could be eligible for the super co-contribution if you make after-tax contributions to your super.

It’s particularly beneficial if you earn less than the lower income threshold ($38,564 for the 2019/20 financial year). The Australian government will co-contribute up to $500 (50 cents in the dollar) if you are eligible.

‘Eligibility’ is determined using upper and lower income thresholds. This means if you earn less than the threshold, you may be eligible for the full super co-contribution.

Your entitlement will be reduced for every dollar earned over the lower threshold until you reach the upper threshold (or cut-off point), beyond which no payment can be made.

To receive the government’s co-contribution you must:

  • Make a voluntary after-tax contribution to your super during the financial year
  • Have been a permanent resident for the entire financial year
  • Be under 71 years of age at the end of the financial year in which the contribution was made
  • Have earned at least 10% of your total income from running a business, or from an employer, or a combination of both
  • Have lodged an income tax return for the financial year
  • Have a total income of less than $53,564
  • Be an Australian resident

*The lower and higher income thresholds are $38,564 and $53,564 for the 2019/20 financial year.

How is the contribution paid?

There is no need to apply for the super co-contribution. If you make a personal after-tax contribution and you are eligible, the money will automatically be paid into your super account. You just need to lodge your tax return as you normally would.

Your super fund will send the information about your super contributions by 31 October each year to the Australian Taxation Office (ATO) and they will calculate the co-contribution amount to be paid into your account. Generally, the money will be paid directly into the fund in which you made the after-tax contribution. It takes about 60 days and the ATO will notify you once the co-contribution has been paid.

You don’t have to contribute the maximum amount of $1,000, or make your contribution in a single payment. You can make smaller payments throughout the year and still be eligible for a contribution from the government.

Will you pay tax on the co-contribution?

The co-contribution is free of contributions tax and is returned tax-free to you at retirement. However, any earnings on the co-contribution will be subject to concessional tax rates.

Note that the government has placed caps on both before and after-tax contributions to super (including salary sacrifice and employer contributions).

Any contributions over the relevant caps are subject to additional tax.

Case study: John

John is currently employed. He has a yearly salary of $34,000 and has a super balance of $30,000.

As John’s salary is less than $38,564, he’s eligible to take advantage of the full super co-contribution bonus. If John contributes $1,000 as an after-tax, non-concessional contribution, the government will contribute 50% of his contribution ($500), effectively increasing the total amount to $1,500.

John’s curious to know the long-term benefit to his super balance over 10 years if he was to continue to make after-tax contributions.

See the table that shows the result of not making the $1,000 personal contribution, compared to contributing the $1,000 and receiving the full super co-contribution.

Assumptions
  • Current salary: $34,000
  • Current super balance: $30,000
  • Current employer super contributions: $3,230 (9.5% Superannuation Guarantee)
  • No rise in Superannuation Guarantee rates has been factored in
  • Super investor profile – medium growth
  • Projection term 10 years
  • Projection returns 6%
  • No fees or charges have been factored in
Value5 years10 years
Without co-contribution$56,612$92,329
With co-contribution$65,515$113,042
Additional benefit$8,903$20,713

Value

This is the result without taking into account salary or Superannuation Guarantee increases.

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