Super co-contribution scheme explained
With a potential return of 50 per cent, the government's super co-contribution scheme is worth cashing in on. First Super CEO Bill Watson and personal finance editor John Collett explain.PT3M9S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-39s82 620 349 June 9, 2014
There may be only a few weeks before June 30, but there is still enough time to implement some superannuation strategies that will give immediate tax savings or a government subsidy.
First off is the government co-contribution scheme. If your adjusted income is less than $48,516 you can make after-tax (non-concessional) super contributions that attract a government payment.
For each dollar of contribution the government puts 50 cents into your super fund, up to a maximum government co-contribution of $500.
Super reward: Couples can take advantage of the tax offset for spouse contributions. Photo: Jessica Shapiro
The maximum government co-contribution of 50 cents for each dollar is for incomes up to $33,516. As incomes rise above this threshold, the government co-contribution phases out. It cuts out altogether once income exceeds $48,516.
For those who can spare the money, the co-contribution - with its immediate investment return of 50 per cent - is the best investment going. Another quick-fire move that can be made before June 30 is to take advantage of the tax offset for spouse contributions to a low-income partner’s super fund.
If a partner earns less than $10,800, the spouse can make a payment of up to $3000 into the partner’s super fund. The partner then receives an 18 per cent tax offset on their income tax for the contribution. It works out as a maximum offset of $540.
Some of the offset can be picked-up by a partner of a spouse who earns less than $13,800.
Most people are able to make after-tax contributions to their super. Someone who has received a windfall, for example, could use the money to make a contribution of up to $150,000 this financial year. Contributions up to $450,000 can be made over a three-year period. That means contributions of more than $150,000 can be made in a single financial year as long as the total contributions are limited to $450,000 over the three years.
From July 1, 2014, the after-tax contributions cap increases to $180,000, which means a total of $540,000 can be contributed over the fixed three-year period. There are age and other restrictions on who can make voluntary contributions into their super and on the person receiving spouse contributions.
Contact your super fund, which should be able to provide general advice over the phone. The earlier, the better: Remember to leave some time before the end of the financial year to allow for superannuation funds’ processing times.
The end of the financial year is also a good time to consider whether to sacrifice some of your salary into super.
By salary sacrificing, the investor’s marginal rate of income tax is swapped for the 15 per cent superannuation contributions tax (30 per cent for those earning more than $300,000 a year). From July 1, 2014, the caps or limits will increase.
The salary sacrificing cap will increase to $30,000 from July 1, from $25,000 this financial year. And anyone aged 50 or over will have a cap of $35,000. The salary sacrifice caps include the compulsory super contributions, which will rise to 9.5 per cent of wages from 9.25 per cent now.