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Guest post by: Rob Bourne Become an Author

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Prior to the May 2012 Federal budget the government announced a reduction in the superannuation co-contribution scheme.

The government will reduce the maximum co-contribution to $500 from 1st July 2012 on a 1 for 2 basis. For the current financial year ending on 30th June 2012, a person can receive upto $1,000 from the government as a matching contribution ( 1 for 1) into their super fund if their income for the year is below $31,920 and they make an after tax contribution.

The announcement prior to the budget proposed that the income threshold was also going to be lowered, but the budget now suggests that the income thresholds will remain unchanged.

What does this mean?

From 1st July 2012 the government's super co-contribution scheme will operate as follows:

• A maximum contribution from the government of $500 per year
• To receive the maximum contribution a person will need to make an after tax contribution to their super fund of $1,000 and have an income of $31,920 or less for the year.
• For every dollar of income above $31,920, the government's contribution will be reduced by 3.33 cents phasing out completely when a person's income reaches $46,920.

Examples

1. A person contributes $700 to their superannuation during the year as an after-tax contribution and their income is $30,000. The government will contribute $350 to their super fund after their income is confirmed through lodgement of their tax return.
2. A person contributes $5,000 as an after tax contribution to their super fund and their income is $40,000 for the year. The government's co-contribution will be $231.
3. A person contributes $1,000 as an after tax contribution and their income for the year is $47,000. There is no contribution from the government as their income exceeds the higher threshold of $46,920.

From the 1st July 2012 the government also announced a new measure to refund upto $500 of contributions tax paid by low income earners through their super fund where their income for the year is below $37,000.

For low income earners who want to receive the full benefits of the refund of contributions tax ($500) and the maximum co-contribution of $500, nothing has changed from last year. you will still have to invest $1,000 into super. If you do nothing however, and your income is below $37,000, then you will receive upto $500 from the government for no investment.

I can see the co-contribution scheme losing support in favour of people doing nothing to recieve the $500. It makes you wonder what the government's logic is by taking away the incentive for people to contribute to super themselves and be less reliant on the government age pension in retirement.

Their reasoning behind removing the tax on contributions is because taxpayer's on incomes below $37,000 received no tax benefit from the 15% concessional tax rate in super.

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Referred by: http://jaykubassek.com

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