Basic Superannuation Strategy # 1
The Government Co Contribution By using this particular strategy you may be able to qualify for a Government co contribution of up to $1,000 (in this financial year) and also take advantage of the maximum tax rate of 15% that is payable on superannuation fund earning.
How Does the Strategy Work? If you earn less than $61,920 pa (of which 10% must be from eligible employment or carrying on a business i.e. you cannot have investment income alone) and you make a personal after tax super contribution, the Government will also make a payment into your account for free. This additional contribution is known as the co contribution and can over time make a significant difference to the value of your retirement savings. For example, to get the maximum contribution you must earn less than $31,920 and if you do and you place an amount of $1,000 into your account this financial year using personal money that has not had tax claimed on it (ie such as salary sacrificed amounts or employer contributions) then the Government will pay an additional $1,000 into your account. Once you earn above this rate, the amount the Government will contribute reduces at a rate of 3.33c for every $1 that is earned above the lower threshold (as a result the benefit is wiped out completely at $61,920. For example if you earn $46,920 (halfway between the two thresholds) then the payment is reduced by $500 (this is calculated by $15,000 (being the amount of dollars above the lower threshold) multiplied by 3.33c which equals $499.50 rounded up to $500). To get this maximum contribution you only need put in $500 in this case i.e. even if you put in $1,000 you will only be eligible for the $500 payment. Very often people will place extra amounts in just in case to make sure they get the maximum amount. This can be a good way to go. The ATO generally makes the payments into your account without notifying you (usually by 31 October each year). You can nominate which fund that you receive the amount in by completing the ATO nomination form (see link below for attachment) alternatively the ATO makes the election for you based on a set criteria.
ÂŠ 2010 The Investment Circle Pty Ltd
The contribution rates are set to change in the future. At the moment the expectation for future years is set out below. We will work to ensure that the information on this strategy remains current for you to ensure you are making the most of the strategy and not making any costly mistakes. All in all this strategy is very useful to help add to your superannuation balances. If you look to the long term and continue to apply yourself to this strategy you may be able to add many thousands to the tens of thousands to your final retirement balance given the additional savings power of the strategy whilst being invested in a tax effective structure to your chosen risk profile.
Things To Watch Out For: • • •
Remember the money is preserved until retirement. You must make sure that your fund has your tax file number so the ATO can apply the payment into your account. Under current legislation you can not salary sacrifice to reduce your taxable income to get the payment. Additional sacrificed amounts will be counted as salary however your standard employer contributions are not counted as salary. Remember the contribution limits for personal contributions.
From 1 July 2009, the super co-contribution matching rates are: Date Amount you will receive for every $1 of personal super contributions From $1 for every $1 you contribute, up to a maximum co-contribution 1 July 2009 of $1,000 a year. until However, you must reduce this by 3.333 cents for every dollar 30 June 2012 your total income is over the minimum income threshold amount. From 1 July 2012 until 30 June 2014
$1.25 for every $1 you contribute, up to a maximum cocontribution of $1,250 a year. However, you must reduce this by 4.167 cents for every dollar your total income is over the minimum income threshold amount.
From 1 July 2014
$1.50 for every $1 you contribute, up to a maximum cocontribution of $1,500 a year. However, you must reduce this by 5.0 cents for every dollar your total income is over the minimum income threshold amount.
© 2010 The Investment Circle Pty Ltd
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ÂŠ 2010 The Investment Circle Pty Ltd