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What is the Government’s co-contribution payment?

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Is it true that the Government will give people free money if they put extra amounts of their money into super? How do you go about it and who can do it? And can a self-employed person access it or is it just for employees?

Here the Government will pay up to $1000 for low-income Aussies who make non-concessional contributions.

These are payments that come from, say, your bank account and are what the experts call post-tax dollars, which means you have paid tax on these dollars. This means you don’t pay a contributions tax of 15 per cent when you put this money into your super.

So if someone is on $31,920 or less and they put $1000 into their super fund, then the Government will match it. Yep, that’s right – they will match it dollar for dollar.

The Government’s help decreases by 3.33 cents for every dollar over $31,920 you earn, which means if you put in $1000, the matching reduces and actually cuts out at $61,920. If you were on the magic number of $31,920, which is called the low threshold, or less and you put in $700, the Government will co-contribute $700. As I said, at these income levels they match dollar for dollar.

To work out your potential co-contribution from the Government, say your income is $44,000, so deduct $31,920 and that equals $12,080. Multiply this amount over the low threshold by 3.33 cents, which gives you $402 and take this from $1000 and that equals $598 and that’s what you get.

Have a look at these numbers:

$44,000 — $31,920 = $12,080, and so your co-contribution = $1000 — ($12,080 X 3.33c) or $402, and that equals $598.

On whether a self-employed person can access this Government co-contribution, the answer is yes. If such a person contributed $700 extra as a non-concessional contribution and had net earnings of $31,920 or less, the Government would match the $700.

If you’re wondering when it’s paid, the super fund has to tell the ATO by October 31 of relevant contributions and it should be paid within 60 days. It’s not bad and every low-income Aussie should know about this.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, October 18, 2011

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