Want to earn a risk-free, tax-free 50% return on your money? Of course! One way to achieve this is through the super co-contribution scheme, commonly known as the government co-contribution.
In this article, we’ll explore how the super co-contribution works, eligibility criteria, and the steps you can take to make the most of this strategy.
What Is the Super Co-Contribution?
The super co-contribution is a scheme where the government matches personal non-concessional contributions made to your superannuation, up to a certain limit, provided you meet specific eligibility criteria. The co-contribution is a government initiative aimed at low and middle-income earners to help them save for retirement.
For every dollar you contribute to your super (up to $1,000), the government will contribute 50 cents, up to a maximum of $500. This co-contribution is non-taxable (which means it is not included in your assessable income and does not affect your tax position) and does not count towards any contribution cap limits.
The matched $500 co-contribution represents the 50% risk-free, tax-free return we alluded to earlier.
Eligibility for Super Co-Contribution
Before making a personal contribution to take advantage of the super co-contribution, it’s important to confirm that you meet the following eligibility criteria:
- Income Limits: To qualify for the super co-contribution in the 2024-25 financial year, the following income tests apply:
- Income Test 1: Your total income must be below $60,400. The full co-contribution of $500 is available if your income is $45,400 or less, with the co-contribution gradually reducing as your income approaches the higher threshold. It is important to note here that your total income is a combination of your assessable income plus reportable fringe benefits plus reportable employer super contributions.
- Income Test 2: At least 10% of your total income must come from employment, carrying on a business, or a combination of both.
- Super Fund Requirements: The superannuation fund must be a complying fund for the co-contribution to apply.
- Age Requirements: You must be under 71 years of age at the end of the financial year.
- Total Superannuation Balance (TSB): Your TSB must be under the general Transfer Balance Cap at the end of the previous financial year (the cap is $1.9 million in 2024–25).
- Non-Concessional Contributions Cap: You must not have contributed more than your non-concessional contributions cap. The general non-concessional contributions cap for 2024–25 is $120,000, but you may be eligible to contribute more using the bring-forward rule.
How is the Super Co-Contribution Paid
After determining your eligibility, you need to contribute to your superannuation account, ensuring the contributions are non-concessional. This can generally be done via BPay or EFT.
The co-contribution will generally be paid into the super fund where the voluntary super contribution was made. You do not need to apply for it, the ATO will automatically determine the co-contribution amount you are entitled to when your tax return is lodged. So, make sure you lodge a tax return if you are eligible for the co-contribution!
What to Watch Out For
While it may seem like a no-brainer to make this contribution if you eligible for the co-contribution, there are some important things you need to consider first. This includes:
- Restricted Access to Funds: Contributions (including the co-contribution) are preserved in your superannuation until you meet a condition of release. The most common condition of release is reaching preservation age and retiring from the workforce or attaining age 65. You need to familiarise yourself with the conditions of release before making a contribution.
- Investments and Fees: Before putting any additional money into superannuation, you want to ensure you understand (and are comfortable with) the investment strategy and fee structure within your super fund.
The Guided Investor Approach
Here at Guided Investor, we see the government co-contribution as “low hanging fruit”. It is a quick little top up to your retirement savings with an extra little boost from the government.
For many low and middle-income earners, this initiative can help offset fees and insurance premiums, effectively allowing the government to cover part of your super costs.
We consider eligibility for the super co-contribution in every phase of the wealth creation process. By leveraging this scheme, you can give your retirement savings a boost with minimal effort.
