Co-contributions scheme reprised

Low income earners who make a personal after-tax contribution of $1,000 to their super before 30 June 2007 could be eligible for a co-contribution of up to $1,500 from the Government. Its amazing how frequently this is coming up in client meetings and it makes sense to summarise the rules once again.

The rules have a particular relevance to doctor's children or other family members with low taxable incomes or doctors who through other tax planning methodologies, such as large deductible superannuation contributions, have reduced their taxable incomes down towards the $25,000 mark.

Key points:
The Government will match each dollar of personal after-tax contributions with a co-contribution of up to $1.50
The maximum co-contribution amount paid by the Government is $1,500 per year
Eligibility rules and limits apply
You need to make a personal contribution before 30 June 2007 to be eligible.

How does the co-contribution work?
Depending on your income, the scheme can provide up to $1.50 for every dollar you contribute. A maximum of $1,500 per year for a $1,000 contribution applies.
The scheme works on a sliding scale - the more you earn, the less you get from the Government. (Your income includes assessable income for tax purposes i.e. wages, share dividends etc.)

How much of a co-contribution could you get?
The maximum co-contribution amount of $1,500 is available to those earning $28,000 or under. For this purpose your reportable fringe benefits are also considered to be earnings.
However, you can earn up to $58,000 for the 2006/07 year and still receive some co-contribution. For the year ending 30 June 2007, the co-contribution amount reduces by 5 cents for every dollar you earn over the minimum threshold of $28,000. It cuts out altogether once you earn $58,000 per annum).

The Government co-contribution is free of contributions tax (treated as an ‘undeducted contribution’ for tax purposes) and is returned tax free to you at retirement.

Are there any other conditions?
At least 10 per cent of your income must be earned as an employee
You must be under age 71 at the end of the financial year in which you make the contribution
You need to make a personal after-tax contribution to your super account before 30 June 2007
You must be an Australian citizen or permanent resident for that financial year, and
You will need to lodge your tax return for the 2006/07 financial year.
It is important to note that amounts you contribute and receive as a co-contribution are generally preserved until you reach 65 or satisfy another requirement set by the Government for accessing your super.

You won’t need to apply for the co-contribution - once you’ve made your personal after-tax contribution all you need to do is lodge your tax return for the 2006/07 financial year as normal. Your super fund will send the Australian Taxation Office (ATO) details of your personal after tax contribution and the ATO will then determine your eligibility and calculate any co-contribution to be paid to your super account.