Urgent: Last Minute Superannuation

With end of financial approaching quickly, we felt it important to highlight the two remaining government incentives for contributing to superannuation.  These two incentives are,

1. The government co-contributions
2. The spouse tax offset

Following are detailed comments to determine if you are eligible for the incentives and how to calculate your maximum entitlements.  Obviously, you must also be entitled to contribute to superannuation in the first place.

Payments need to be received by complying superannuation fund before the end of financial year.

The government co-contribution

This incentive has been around for many years and with each new government elected, a few changes are made.  As it stand for this current financial year the maximum government co-contribution obtainable is $1,000.

The co-contribution is paid on a dollar for dollar basis for non-concessional (after-tax) contributions made to superannuation in this financial year.  For people eligible for the maximum incentive, they simply have to add $1,000 to their superannuation account.  This is a great incentive, in affect it is a 100% return government guaranteed.

People earning below $31,920 (assessable income) are entitled to maximum benefit, therefore if they contribute $1,000 the government will also contribute $1,000 to their superannuation account.  People earning over $61,920 are not eligible for co-contribution.

For people earning between $31,920 and $61,920 you are entitled to receive a partial co-contribution.  To determine the amount you need to contribute for maximum benefit a simple calculation is required.

• Step 1:  Firstly determine your assessable income (for a rough guide just add gross income, plus salary sacrificed super contributions, bank interest, dividends and any reportable fringe benefits), alternative you can ask your accountant or financial adviser. 
• Step 2:  Subtract the lower threshold of $31,920 from the figure determined at Step 1 (lets assume the Step 1 figure is $55,000), therefore ($55,000 - $31,920 = $23,080)
• Step 3:  Multiply figure obtained at Step 2 by 0.03333  ($23,080 X 0.03333 = $770)
• Step 4:  Subtract figure determined at Step 3 from the $1,000 maximum contribution ($1,000 - $770 = $230)
• Step 5:  Maximum co-contribution is $230, this is the maximum entitlement you are eligible for and therefore this is also the maximum contribution you should make to super (for co-contribution purposes).

Importantly the co-contribution payment is added to the superannuation account, it is not a tax refund or rebate.

The Spouse Tax Offset

This incentive is slightly different to the government co-contribution detailed above.  The main difference is that this incentive is obtained by the contribution recipients’ spouse and not the person making the contribution.  For example, a husband making a contribution to his wife’s superannuation account would receive the benefit and not the wife.  The incentive is in the form of a rebate in the husbands personal tax return; the benefit is up to $540.

To obtain the benefit (using the husband and wife example above), the wife needs to be earning less than $13,800 in the current financial year and the husband needs to contribute to her superannuation fund.  For eligible amounts being contributed a tax rebate of 18% is offered.  This is an excellent benefit for doing nothing more than adding a few extra dollars to superannuation.

The maximum benefit is obtained when the wife earns below $10,800 and the husband contributes the maximum eligible amount of $3,000.  In this example, the husband would receive a tax rebate in his personal tax return of $540. 

A reduced benefit is also paid when the wife earns between $10,800 and $13,800.  Between these amounts the eligible contribution required to obtain the maximum rebate reduces dollar for dollar for the wife’s income over $10,800.  For example, the maximum eligible contribution if the wife earns $11,800 is $2,000 (if the wife earned $12,800 the maximum contribution would be $1,000).  In these examples, the rebate for the husband would reduce accordingly (reducing to $360 and $180 respectively).

Income used to determine eligibility is determined in the same way as Step 1 above.  The husband (in this example) is not income tested and therefore in theory could earn $1,000,000 per annum and he would still be entitled to the spouse rebate.

Obviously the example above assumes the husband makes contribution on behalf of the wife, however it also applies if the wife contributes to the husbands super as long as his income falls below the $13,800 limit (as he would be the recipient in this case).