Government Super Co Contribution

The Government Super co contribution applies to personal contributions made by low-income earners from 1 July 2003 onwards. Back then it was $1,000 co contribution for $1,000 eligible contributions. Just so you know, back then I wasn’t even slightly interested in it because my employment income was high. As mentioned in the previous post about personal Super contributions to save tax and build wealth, I quit my corporate job in 2009 and started being self employed.

If you’ve ever been self employed, you know your income can vary from year to year. Some years, your income could fall within the “low income” threshold. I always knew about the government Super co contribution but thought the amount was too little to be bothered. But small amounts do accumulate and they could grew to a much bigger amount staying in your super fund.

For Australian tax payers whose income was less than $53, 564 ($54,837 for the 2021 year), the government will make co- contribution into a tax payer’s superannuation account where eligible non-concessional contributions up to $1,000 have been made by qualifying low income earners. Fifty cents in every dollar of contributions, up to a maximum superannuation co – contribution of $500 a year will be paid into the taxpayer’s superannuation account for the income year.

You may be eligible the Government Super co contribution if you:

  • made personal contributions to obtain superannuation benefits for themselves (or a dependent in the event of their death) to a complying superannuation fund or Retirement Savings Account (RSA) on or after 1 July 2005 (provided the contributions were not salary sacrifice contributions and they will not claim a tax deduction for the contributions)

  • have lodged an income tax return for the relevant financial year

  • total income was less than $53,564 (for the 2020 financial year$54,837 for the 2021 year). 

  • have not been the holder of a temporary resident visa at any time during the year unless they are a New Zealand citizen or the holder of a prescribed visa

  • are less than 71 years old at the end of the financial year during which the contribution was made

  • have at least 10% of their total income for the income year attributable to carrying on a business (i.e.  self-employed) or to activities that result in the person being treated as an ‘employee’ for superannuation guarantee purposes. Those who earn less than $450 per month or are part-time workers under 18 (i.e. not covered by the superannuation guarantee regime) will still qualify for the government co-contribution as they are still regarded as ‘employees’ for SGAA purposes

  • have a Total Superannuation Balance of less than $1.6m on 30 June of the previous financial year

  • have not exceeded their non-concessional contribution cap in the relevant financial year

Total income for the purposes of the Super co contribution includes:
  • assessable income
  • reportable fringe benefits amounts
  • reportable superannuation contributions

less

  • any assessable First home super saver released amount, and
  • any allowable business deductions

Also, there are two income tests applied in determining the government Super co contribution.

10% Total income test

In order to satisfy this test, 10% or more of the taxpayer’s total income must come from either:

  • employment related activities
  • carrying on a business, or
  • a combination of both

Amounts from these sources are referred to as eligible income amounts.

The total income amount is not reduced by allowable business deduction amounts for this test.

Examples of eligible income:

  • salary and wages
  • business earned as a sole trader (the assessable income: turnover – allowable business deductions is used)
  • business earned in partnership (the partnership distribution is not reduced by deductions claimed on the individual tax return in earning the income)
  • directors fees

Note if you are carrying on a business, you may have a high turnover but still be eligible for the super co-contribution due to your allowable business deductions.

The following amounts are not eligible income

  • 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 payments and lump sum payments

Be aware, where you have a partnership distribution, the ATO will treat it as ineligible income. If you have business partnership income, make sure that you complete Item A3.

Total income threshold

To determine your assessable income for calculating the amount of the co-contribution:

  • Total income is reduced by amounts which the taxpayer is entitled to a deduction for carrying on a business. That is, it is net income rather than assessable income for business income.

  • Net partnership income is included. Partnership income includes joint rental and investment income. If the net partnership or joint income is a loss, the amount is 0. This means that, where a person has a rental property in their own name, assessable income is included for the total income threshold test. However, where you have a rental property in joint names, you only need to inclue the net rental income (or 0 if it is a loss).

The ATO will treat joint rental and investment income as solely earned income unless you complete Item A3 correctly.

Government co contribution calculation

The taxpayer’s co-contribution is reduced by 3.333 cents for each $1 of total income over the lower threshold.  The lower threshold for the 2020 year is $38,564. And the government Super co contribution phases out completed where the total assessable income, reportable employer superannuation contribution and reportable fringe benefit amount reaches the upper threshold of $53,564.  

For the 2021 year, the lower threshold is $39,837 and the upper threshold is $54,837.

Provided the taxpayer is entitled to receive the co-contribution, the minimum amount payable is $20. The co-contribution will be paid directly into the taxpayer’s superannuation account or RSA (Retirement Savings Account).

The formula for calculating the maximum co-contribution amount is:

=  $500 – {[(total assessable income – allowable deductions from running a business + RFB + RESC) – lower threshold amount] x 3.333%}

The ATO has a SUPER CO-CONTRIBUTION CALCULATOR on their website

The co-contribution payable is the lesser of:

  • the maximum co-contribution amount; or
  • 50 cents for every dollar of personal superannuation contributions.

The ATO will automatically calculate the amount of co-contribution, based on the information on the tax return, including the adjustment amounts included at Labels F, G and H at Item A3.

Also for your reference, the ATO has a worksheet available to calculate the amounts.

GOVERNMENT SUPER CONTRIBUTIONS WORKBOOK

How to make personal super contributions for government super co contribution purpose

Firstly, you do not need to make your personal contributions as a single lump sum. You can make payments throughout the financial year. The ATO uses the total amount you have contributed for the year to calculate the co-contribution.

Your super fund can tell you how to make personal contributions. Most funds offer you a number of options including:

  • BPAY®
  • direct debit
  • through your bank account.

In some cases, you can make regular super contributions into your super account directly from your after-tax pay. If the contributions come from your before-tax pay, they are generally referred to as salary-sacrificed contributions and will not qualify for the super co-contribution.

Your super fund needs your TFN before it can accept your personal contributions.

Above all, your personal contributions must reach your super fund by 30 June each year for you to receive a government co-contribution for that financial year.

Completing Item A3 On Individual Tax Return

In some circumstances, the ATO may be able to calculate the correct co-contribution without Item A3 being completed. The ATO will match the information on the tax return with information from superannuation funds and pay you the co-contribution automatically. However, often the completion of this item is crucial or the taxpayer may not get the correct amount of co-contribution, or may miss out altogether on the benefit.

LABEL F – Income from Investment, Partnership and Other Sources

You should complete the box if you

  • showed income from a partnership at Item 13 of the tax return or
  • were in a joint income group and they have deductions for the following joint income:
    • interest and dividends (Items 10 and 11)
    • trust distributions (Item 13 labels L, U or C)
    • foreign entities income (Item 19 labels K and B)
    • foreign income (Item 20 labels E and F)
    • rental income (Item 21 label P)
    • bonuses from life insurance companies and friendly societies (Item 22 label W)

The amount = the assessable income from each of the above income types in the taxpayer’s name only, plus the net amount (or 0 if that amount is a loss) of each of the above income types in joint names

If this amount is NIL then enter code C in the box.

LABEL G – Income from Employment and Business

The ATO will automatically treat certain amounts as employment or business income. Label G includes the amount of any adjustments to this automatic calculation. For example, assessable income from foreign employment income and partnership distributions where the partnership is carrying on a business will need to be added. Deduct some amounts from employment or business income on the tax return. For example, if you received parental leave pay or Dad and Partner pay after employment ceased, deduct this amount. Other examples are employment or business income that relates to an earlier income year, such as back payments of wages or a lump sum paid on termination. To clarify, Label  G includes the below:

  • total employment income NOT SHOWN at Items 1, 2, 3, 4 (excluding death benefits), Item 12B, IT1 or IT2 plus
  • business income NOT SHOWN on the Business and professional items schedule of the tax return

less

  • Items 1, 2, 3, 4 (excluding death benefits), Item 12B, IT1 or IT2 – total income that was not from employment
  • any parental leave pay that has been received AFTER the taxpayer CEASED employment (not the amount received during the time the taxpayer is on leave from their job)
  • non-business income on the Business and professional items schedule of the tax return

If this amount is NEGATIVE then enter code L in the box.

LABEL H – Other Deductions from Business Income

Business deductions that are not at Item P8 on the Business and professional items schedule for individuals of the tax return. This may include, for example

  • the business portion of a distributed partnership loss included in calculating the amount at N or O at item 13 (as long as the partnership carries on a business)
  • deductions at X or Y at item 13 which relate to the business income portion of a partnership distribution
  • personal service income deductions at item P1 on the Business and professional item schedule for individuals which relate to carrying on the business
  • deductions shown at D10 for costs involved in managing the business tax affairs as a sole trader or partnership business

Government Co-Contribution for Superannuation Contributions – Temporary Residents

Finally, temporary residents are not eligible for the government co-contribution for any personal superannuation contributions that they may have made during the year. It is not available to anyone who has been the holder of a temporary visa at any time during the year. As a result, any temporary resident who becomes a permanent resident during the income year will not be eligible for this benefit either.

From 1 July 2009, New Zealand residents who are living temporarily in Australia have been eligible to receive this payment, irrespective of whether or not they are classed as temporary residents.

 

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