There are many incentives to encourage people to save for their retirement through superannuation. One of these incentives is the government superannuation Co-contribution, which aims at helping low income earners increasing their superannuation account balances.  Basically, if meet the eligibility criteria and make personal superannuation contributions (non-concessional contributions), the government will also make contributions to your superannuation fund on your behalf. Hence, it is called Co-contribution.

The government Co-contribution is not the same as the Low Income Superannuation Contributions. If you’re a low income earner, you may be eligible to receive both benefits.

All you have to do is make a personal contribution to your super fund and lodge the tax return; the Australian Taxation Office (ATO) will help you out by making the Co-contribution to your super fund on your behalf. For the 2012-13 financial year, the ATO is giving you $0.50 for $1.00 personal contribution you put into superannuation to a maximum of $500 each year. For example, if you contribute $1,000 by 30 June 2013, the ATO will contribute $500 for you. In the previous years, the Co-contribution was $1,000 for $1,000 personal contribution you put in.

To be eligible to receive the superannuation Co-contribution from the ATO:

1.  Your total income must be less than $46,920 (upper threshold). This is your assessable income plus fringe benefits plus reportable employer contributions (this is any employer contributions above the compulsory 9% SG) less any tax deduction. The upper threshold was reduced from $61,920 in the 2011-12 financial year.

If your total income is less than $31,920 (lower threshold), you’ll receive the full benefit, that is, $0.50 Co-contribution for every $1 personal contribution you make. If your income falls between the lower and upper thresholds, you’ll receive a partial benefit. That is, for every $1 your income exceeds the lower threshold, the Co-contribution is reduced by $0.033.

The formula is:

Co-contribution = $500 – (total [income – $31,920] x $0.033)

For example, if the total income is $38,000, what is the co-contribution?

Co-contribution = $500 – ([$38,000 – $31,920] x $0.033)

= $299.36

2.  You must make a personal contribution (non-concessional contribution) to your super fund by 30 June and not claimed it as a tax deduction, to qualify for co-contributions that year.

3.  You must be less than 71 years old at the end of the applicable financial year and if you’re 65 or over, you must also meet the work test by working at least 40 hours in a period not more than 30 consecutive days in the financial year.

4.  You must lodge the tax return for the applicable financial year.

5.  At least 10% of your total income must come from employment or from running your own business (including self-employment) or a combination of both.

6.  You must be an Australian or New Zealand citizen.

What you need to do to receive the co-contributions from the ATO:

1.  You make personal superannuation contributions during the financial year.

2.  Your superannuation fund reports the contributions for the financial year just ended, to the ATO by 31 October.

3.  You lodge the tax return for the financial year just ended, by 31 October.

4.  The ATO now has all the information from you and your super fund to make a determination whether or not you’re eligible to receive Co-contributions.

5.  If you’re qualified, the ATO will start paying the Co-contributions to your super fund between November and January each year.

6.  The original personal contributions that you made in order to qualify for the Co-contributions are applied to your account as non-concessional contributions and counted towards the non-concessional contributions cap. The Co-contributions that you receive from the ATO are also applied to your account as non-concessional contributions but it does not count towards your contributions cap.