Getting money into super
Members with 'total income' less than $54,837 in the 2020/21 financial year and make a personal non-concessional contribution into super may be eligible for a government co-contribution up to $500.
To qualify for the government co-contribution a member must meet the eligibility criteria.
What is the government co-contribution?
The government co-contributions is designed to help eligible members boost their super savings.
Members on a low-middle-income earner and a personal (after-ax) contribution is made to their super fund, the government also makes a contributions up to a maximum of $500.The amount of government super-co-contribution a member receive depends on their income and how much they contribute.
Note: The super fund must have the members tax file number, as the ATO will pay the government co-contribution to the super fund account automatically.
To be eligible to receive a government co-contribution, members must satisfy the following requirements for the relevant financial year:
- be less than 71 years old at the end of the financial year
- be eligible to contribute to superannuation and make a personal non-concessional (or after tax) contribution to a complying superannuation fund or retirement savings account (RSA) by 30 June
- pass the two income tests (income threshold and 10% eligible income tests)
- lodge a tax return for the relevant financial year
- not hold a temporary visa at any time during the financial year (unless they are a New Zealand citizen or it was a prescribed visa)
- total superannuation balance is less than the transfer balance cap ($1.6 million for the 2020/21 financial year) at the end of 30 June of the previous financial year.
- not contributed more than there non-concessional contributions cap
Contributions not eligible for a co-contribution
- child contributions
- spouse contributions
- transfer from an overseas fund
Claiming a tax deduction for personal contributions
Eligible members seeking a co-contribution would need to consider the component of their contribution for which they intend to claim a deduction and the component they wish to remain non-concessional (not deducted) for co-contribution process.
In order for the member to receive the co-contribution, there total income must be less than the higher income threshold for that financial year.
Total income is the sum of:
- assessable income
- reportable fringe benefits,
- reportable super contributions reduced (but not below zero) by any excess concessional contributions, less
- members assessable first home super saver released amount, and allowable business deductions
Assessable income - is the income that is included in the member's tax return. Assessable income is not reduced by tax deductions (taxable income is after tax deductions).
Reportable fringe benefits - Certain fringe benefits (non-cash benefits) paid by an employer are required to be reported in the employee's tax return. These are known as reportable fringe benefits.
Reportable employer superannuation contributions - reportable employer superannuation contributions are contributions made to a superannuation fund by an employer for an individual, that the individual has or might reasonably be expected to have the capacity to influence the:
- the size of the contribution and/or
- way the amount is contributed so that the member's assessable income is reduced.
10% eligible income test
Self-employed member's total income must come from either:
- employment-related activities
- carrying on a business
- a combination of both
To determine eligibility for the co-contribution under the '10% rule' for a sole trader, total income is not reduced by business deductions.
Income that is related to employment or business is eligible income - for example:
- salary and wages
- business income earned as a sole trader or in a partnership
- director fees.
The following types of income are not eligible income for super co-contribution purposes:
- non-business partnership distributions
- distributions from a trust
- income from individually or jointly held assets, such as interest, rent and dividends
- income related to another year of employment, such as employment termination payment and lump sum payments.
This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.
Last modified: Wednesday, November 4, 2020