A Better Superannuation System - Introduction of Government Superannuation Co-contribution for Low Income Earners

The Government will contribute up to $1,000 a year towards the superannuation savings of eligible low income earners where they make personal undeducted contributions to superannuation after 1 July 2002.

The co-contribution was first announced on 5 November 2001 in the policy document
A Better Superannuation System, and replaces the existing maximum $100 rebate for personal superannuation contributions made by low income earners.

The co-contribution is expected to boost the superannuation accounts of low income earners by $95 million in 2003-04, $100 million in 2004-05 and $105 million in 2005-06.

This measure, combined with the Government's other initiatives will encourage increased savings and self-reliance in retirement. The co-contribution will be of particular benefit in encouraging low income Australians to make greater personal undeducted contributions into superannuation.

A maximum co-contribution of $1,000 will be payable for individuals with assessable income and reportable fringe benefits of up to $20,000 per annum. The maximum co-contribution will be reduced by 8 cents for each dollar of assessable income and reportable fringe benefits over $20,000 (up to $32,500).

A minimum co-contribution of $20 will apply, as long as the person's income is below $32,500 and he/she has made undeducted superannuation contributions during the year. The attached table provides examples of the operation of the co-contribution phase out and minimum payment.

To be eligible for the co-contribution a person must have employer superannuation support.

Self-employed persons continue to be eligible for a deduction for superannuation contributions (rather than the co-contribution). From 1 July 2002, contributions to superannuation by the
self-employed of up to $5,000 will be fully deductible (compared to $3,000 currently) with the balance of the contributions 75 per cent deductible with a maximum deduction equal to the taxpayer's age based limit. Those with spouse superannuation support (but no employer support) will be eligible for the same deductions as the self-employed.

The co-contribution will not be subject to tax when paid into a superannuation fund or when paid out to the individual as an end benefit. As with other superannuation contributions, the co-contribution will be required to be preserved in a superannuation fund until the taxpayer reaches normal preservation age (currently age 55 for those born before 1 July 1960, increasing to 60 for those born after 30 June 1964).

The co-contribution will be administered by the ATO and paid directly into a taxpayer's superannuation account. The co-contribution will not be able to be used to offset unpaid liabilities with the ATO.

The ATO will run a community education campaign to raise awareness of the co-contribution and to explain how it will operate.

CO-CONTRIBUTIONS PAYABLE FOR VARIOUS PERSONAL CONTRIBUTIONS MADE IN A YEAR OF INCOME