$1000 Gift A Super Incentive

Newcastle Herald

Thursday March 3, 2005

Noel Whittaker

THE superannuation co-contribution scheme has been a resounding success, with more than half a million Australians being eligible for what is, effectively, a gift of up to $1000 from the Federal Government.

Already, 450,000 applicants have been paid, but there are still more than 50,000 who are awaiting the receipt of the Government's contribution to their superannuation fund.

Assistant Treasurer Mal Brough, who is responsible for superannuation, tells me the delays are usually caused by the failure of the superannuation fund to notify the Tax Office that an eligible contribution has been made, or because the names do not match.

Remember, we live in the computer age and the name John J. Smith will not match with John Joseph Smith.

A delay could also be caused in cases where a superannuation fund does not accept co-contributions, or where the member has recently changed funds.

It is also possible that the contribution has already been paid to your superannuation fund, but you have not yet received advice that this has been done.

This advice should come from the Tax Office, which sends a letter confirming payment and other details about the co-contribution once the funds have been paid to the respective member's account.

Almost 40 per cent of applicants are aged under 40, and 63 per cent of them are female.

This is a strong indication that the co-contribution scheme is achieving its aim, which is to help lower-paid workers accumulate more superannuation so they will have a less stressful retirement.

Time is passing quickly and, as March is already here, we should be thinking now about strategies to make the best use of superannuation before June 30 comes upon us.

For the current tax year, the co-contribution has been increased to $1.50 for every $1 of personal superannuation contributions, with a maximum co-contribution of $1500 for contributors whose total taxable income for the current financial year is $28,000 or less.

As income rises the co-contribution reduces until it cuts out entirely at $58,000 a year.

If your total income, which is made up of assessable income plus reportable fringe benefits, for the current year is more than $28,000 but less than $58,000, your co-contribution will be adjusted based on your income and how much you personally contribute.

For example, if your income is $42,000 for the current income year and you made personal superannuation contributions of $1000 or more, you would be entitled to a superannuation co-contribution of $800.

You can use salary sacrifice to reduce your salary to be eligible for a larger co-contribution, but salary-sacrificed superannuation contributions are not eligible for co-contributions.

You will need to make an additional undeducted contribution if you are seeking the co-contribution. For example, a person earning $32,000 a year could salary-sacrifice $4000 into super to bring their income down to $28,000, then make an extra contribution of $1000 from after-tax dollars and so become eligible for the extra $1500 from the Government.

To be eligible for the co-contribution, you must have received at least 10 per cent of your income from what is called eligible employment generally income from salary or wages. Also, the regulations have been changed so that a person is no longer eligible to claim a tax deduction for part of their own superannuation contributions if they qualify for a co-contribution.

This means that retired people under 65, the unemployed and the self-employed cannot claim the co-contribution but they can claim a tax deduction of $5000 plus 75 per cent of the balance, which still makes contributing to superannuation very worthwhile.

The spouse rebate is a further incentive to contribute to superannuation. A rebate of 18 per cent of the contribution, with a maximum of $540, is available to people making contributions on behalf of their partner or spouse.

The full rebate is available to spouses whose assessable income does not exceed $10,800 and reduces by $1 in every $3 until it cuts out once your income reaches $13,800.

It's the easiest 18 per cent on your money you could ever earn. It will come in the form of an increased tax refund as it is a rebate and smart money managers will use their tax-refund cheque to make further superannuation contributions either for themselves or their spouse.

Noel Whittaker is joint managing director of Whittaker Macnaught Pty Ltd, AFSL Number 246519. Email noelwhit@gil.com.au. This advice is general in nature and readers should take their own expert advice before making financial decisions.

© 2005 Newcastle Herald

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