From 1 July 2009, the Government reduced the Co-Contribution matching rate. The generous 150% was initially reduced to 100% temporarily (for 3 years) however in the May 2010 Federal Budget it was announced that co-contribution rate will remain at 100%. Whilst this reduces the benefit of the strategy, it is still an extremely worthwhile strategy for those who are eligible.
The video and transcript below were recorded when the co-contribution was at 150% whereas currently it is a 100% co-contribution. Whilst the benefit has reduced, the strategy still provides a 100% return with no risk and is worthwhile considering for those you are eligible.
Optimal Contribution Calculator 2010/11
Government Co-contribution Video Transcript
Below is the transcript of the Government Co-contribution video presentation.
Introduction
Hi my name is Gavin Martin. I’m a financial adviser, Managing Director of Cornerstone Wealth and founder of MasterMyMoney.com.au.
During this presentation I would like to inform you about the government co-contribution scheme. In these challenging economic times it is important to plan for your future and prudently maximise returns. Under the government co-contribution scheme it is possible to achieve 150% returns.
Under this system there is a guaranteed 150% return on your money.
To achieve this you need to deposit $1,000 in to your super fund and the government will deposit an additional $1,500 into your super account, providing you are eligible.
It’s a system where the federal government will put in $1.50 for every dollar ($1) you put into your superannuation account, up to a maximum co-contribution of $1,500 a year. That is an incredible 150% return with no risk.
When you compare that to the 12% per annum average return of the Australian Share Market over the last 20 years, it shows that it is an opportunity not to be missed.
It’s an initiative to encourage people like you to save for your retirement. If you have paid off your consumer debt (that is car loans, personal loans and credit card debt) you are at Step 3 of the Master My Money Program AND if you are eligible this could be part of your plan for the future.
It is important to make the right investment decisions.
Eligibility
The eligibility requirements have been changed to allow more people to benefit from the scheme. You may now be eligible even if you weren’t in the past.
- There are six eligibility criteria. Let’s run through them quickly:
- Firstly, you need to make a personal superannuation contribution to your super fund by 30 June each year “A personal superannuation contribution (or non concessional contribution) is where you take your money that you have already paid tax on and contribute it to your superannuation fund. For example, when you receive income, you firstly pay tax on the income and receive the remainder as a deposit into your bank account. If you then contribute an amount from your bank account to superannuation it is considered a personal or non concessional contribution.
- The second criteria is that your total income is less than the co-contribution upper limit
- Thirdly, 10% or more of your total income must come from eligible employment, running a business or a combination of both
- Fourth, you need to be less than 71 years old at the end of the income year
- Fifth, you cannot hold an eligible temporary resident visa at any time during the income year, and
- Finally, you must lodge an income tax return.
Remember, you are not entitled to a co-contribution for contributions you claim as a tax deduction, and your superannuation fund must have your tax file number (TFN) to accept your co-contribution.
How much to contribute to your super fund?
If your total income is between the upper and lower thresholds ($28,980 – $58,980), there is an optimum amount you should contribute to get the most out of the scheme without locking up more money in your super fund than you need to.
Case Study – Karen
Karen is 28 years of age and works 3 days a week earning $25,000 p.a.
The previous year she paid off all her credit card debt and then cut up the card. She was disciplined in her saving this year. She requested her employer transfer $80 each fortnight directly to a high yielding bank account. That’s less than $6 a day.
In May she had over $2,000 accumulated and decided to put $1,000 into her superannuation fund. She submitted her tax return in September and in November the government deposited $1,500 into her superannuation account.
If she continued this for 10 years and the investment returned 10% p.a. after 10 years it would be worth nearly $40,000 and after 20 years it would be worth over $140,000.
Case Study – Peter
Peter is 54 years old and works full time earning $44,000 per annum.
He is currently salary sacrificing a portion of his income into his super fund in order to boost his super balance which he is concerned is too low for his age. He also wants to take advantage of the government co-contribution. Because his salary sacrifice amounts are deposited pre tax they are not eligible for the government co-contribution.
Peter decided to make a personal or non-concessional super contribution in order to benefit from the government co-contribution scheme. He used the calculator on the MasterMyMoney website to work out the optimum amount for him to contribute to his super was $500. Peter made the contribution to his super fund and the government deposited $750 a few months later.
How much should you contribute
If you satisfy all the criteria and your total income is less than the lower threshold you should contribute $1,000 to get the biggest bang for your buck.
The maximum co-contribution of $1,500 is scaled back by 5c for every dollar you earn over the lower limit. Using this formula, we can calculate the optimum contribution for your particular income.
There’s a calculator at the end of the presentation to do the math for you.
When do you receive the co-contribution?
Once your super fund has notified the Tax Office how much dough you put into your super fund during the year and you have notified the tax office how much you earnt by lodging your tax return, the Tax Office can then calculate your co-contribution and deposit it into your super account.
Most payments are made between November and January each year.
Remember money in superannuation is subject to preservation rules meaning you can’t touch it unless you reach your preservation age which is currently between 55 and 60 years of age, depending on when you were born.
Although you can’t touch the money until you reach 55 to 60 years of age it is well worth doing to help make your older years your Golden years.
The Master My Money Program is a seven step road map to true financial freedom that I would encourage you to review in considering how to best move forward.
When considering attractive opportunities like the government co-contribution it is important consider the opportunities in light of your full financial position. You should only make these contributions if you have reached step 3 of the Master My Money Program, that is, you do not have any consumer debt.
This presentation provides you with knowledge and knowledge is power.
If you have any questions and would like to know more please contact me.
Contact Details
Gavin Martin BBus (Accounting), BComputing, AdvDipFinPlanning, AFPA Managing Director and Financial Adviser Cornerstone Wealth Pty Ltd Corporate Authorised Representative No 306473 Partnership Financial Services Pty Ltd Australian Financial Services No 220381 Cornerstone Wealth Pty Ltd Level 9 501 La Trobe Street MELBOURNE VIC 3000 Phone 03 9642 2268 Fax 03 9670 4704 Mobile 0412 101 700 Email askgav@mastermymoney.com.au Web www.mastermymoney.com.au www.cornerstonewealth.com.au
General Advice Disclaimer
This presentation does not take into account the personal objectives, financial situation or needs of any person. You should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and obtain professional financial advice prior to making any decision.
