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Super contributions tax concessions

Government co-contribution for super contributions

Section: 4.8

The Government co-contribution involves the Government contributing to the super accounts of low-to-middle income employees and self-employed people to encourage and assist them to save for their retirement.

The maximum Government co-contribution is 50 cents for every $1 of eligible personal super contributions made in a financial year and is subject to an income test.

The maximum co-contribution of $500 reduces by 3.333 cents for every $1 that the taxpayer's total income exceeds $36,813 in 2017-18 until it reaches or exceeds $51,813.

The Government co-contribution does not count toward either the concessional or the non-concessional contributions caps.

Eligibility

You may need to check each fund's trust deed to confirm that the fund can receive the Government co-contribution.

A person may be eligible to receive a co-contribution if all of the following criteria are met:

  • The person makes one or more eligible personal super contributions (a personal non-concessional contribution) during the income year.
  • 10% or more of the person's total income 1 for the income year is attributable to the following:
    • employment, where the person is an employee for SG purposes, and/or
    • self-employment, where the person is carrying on a business.
Total income 1 = assessable income + reportable fringe benefits + reportable employer super contributions (RESC)
  • An income tax return for the person for the income year is lodged.
  • The person is less than 71 years old at the end of the income year.
  • The person does not hold a temporary visa under the Migration Act 1958 at any time in the income year or, if they do, is a New Zealand citizen or the holder of a visa to be prescribed in the Regulations.
  • The person's total income 2 for the income year is less than $51,813.
Total income 2 = assessable income + reportable fringe benefits + reportable employer super contributions (RESC) - any amounts for which the person is entitled to a deduction as a result of carrying on a business.
  • The person's total non-concessional contributions for the income year is less than or equal to their non-concessional contributions cap for that year (see  Non-concessional contributions cap).
  • At 30 June of the previous year, the person's total superannuation balance is less than the general transfer balance cap (see section, Total superannuation balance).

Assessable income

  • Assessable income is income before deductions.
  • Deductions for personal super contributions will reduce taxable income, but will not reduce assessable income.
  • Salary sacrifice will reduce assessable income, however, salary sacrifice super contributions are effectively added back through the inclusion of reportable employer super contributions in the income definitions (refer to section below).

Reportable fringe benefits (RFB)

Fringe benefits are benefits provided to an employee (or their associate, ie a family member) in respect of employment. Benefits can be provided by the employer, employer's associate or by a third party under an arrangement with the employer. An employee has a reportable fringe benefits amount for a year of income in respect of the employee's employment if the employee's individual fringe benefits amount for the year of tax ending on 31 March in the year of income is more than $2,000.

The employer must record the grossed-up taxable value of those benefits on the employee's payment summary for the corresponding income year (1 July to 30 June).

Reportable employer super contributions (RESC)

An individual's 'reportable employer superannuation contributions' (RESC) for an income year, include any super contributions made by an employer or associate of the employer, to the extent that either or both of the following applies:

  • the individual has or had the capacity to influence the size of the amount
  • the individual has or had the capacity to influence the way the amount is contributed

so that his or her assessable income is reduced.

Contributions to superannuation that are required by an 'industrial instrument' or rules of a superannuation fund are expressly excluded from the RESC definition to the extent that there is no capacity to influence the content of the requirement to make the contribution or its size.

An example of a reportable employer superannuation contribution is a salary sacrifice contribution. Salary sacrifice contributions typically involve negotiations by an employee with their employer.

Employer contributions made to meet the employer's superannuation obligations under Federal, State or Territory legislation are not RESCs. This includes an obligation under the Superannuation Guarantee (Administration) Act 1992.

Business deductions

The income concept used here is a net concept for individuals who carry on a business and is designed to ensure that self-employed individuals with high gross business receipts are not arbitrarily exceeding the co-contribution income threshold.

'Any amount for which a person is entitled to a deduction as a result of carrying on a business' has the meaning given by the Income Tax Assessment Act 1997 (ITAA 1997).

The general principles of Section 8-1 of ITAA 1997 must be met. That is, a business can deduct any loss or outgoing to the extent that "it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income". There are also specific deductions that certain provisions of the act allow. Division 12 of ITAA 1997 contains a reference table of specific personal and business deductions.

Deductions for personal super contributions are not business deductions. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007 made this specific exclusion to business deductions:

"Business deductions do not include work-related employee deductions or deductions that are available to eligible individuals (including the self-employed) for their personal superannuation contributions."

Tip: A practical guide to business deductions, Income Tax and Deductions for Small Business (NAT 10710) can be found at www.ato.gov.au

Calculating the maximum Government co-contribution

The maximum co-contribution of $500 is potentially available to individuals whose total income 2 in 2017-18 does not exceed $36,813 pa. The maximum co-contribution reduces by 3.333 cents for every dollar of total income 2 over $36,813, cutting out at $51,813.

A person's maximum co-contribution limit is calculated as follows:

$500 - [((total assessable income + RFB + RESCs - any amounts for which the person is entitled to a deduction as a result of carrying on a business) - $36,813) x 0.03333].

Calculating the Government co-contribution entitlement

A person's co-contribution entitlement is the lesser of:

  • 50% of personal non-concessional contributions made during the financial year, and
  • the person's maximum co-contribution limit as calculated above.
Tips
  • If your client is entitled to a Government co-contribution but has reached preservation age and declared retirement or retired due to permanent incapacity or their legal personal representative is authorised to apply on behalf of the deceased person and no accumulation accounts are open to receive their co-contribution, they may apply to the ATO to have the co-contribution paid directly to them. Use the following form available at www.ato.gov.au Super co-contribution - request for direct payment (NAT 10759)
  • The ATO super co-contribution calculator can be found at: www.ato.gov.au
  • If your client has closed their super fund to which they made eligible personal contributions and rolled over to another fund, they can notify the ATO of the new fund details for receipt of a co-contribution by completing the following form available at www.ato.gov.au Super fund nomination form (NAT 8676)

 Are children eligible for Government co-contribution?

A child may receive a co-contribution if the child makes a personal contribution and meets all the eligibility tests outlined above. Please note that contributions made on behalf of a child are not eligible for the Government co-contribution.

Are spouse contributions eligible for Government co-contributions?

No, spouse contributions are not personal contributions made by the member and as such are not eligible for Government co-contributions.

Last modified: Friday, August 25, 2017