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5. Superannuation Co-contributions for Related Persons on Low Incomes

The Federal Government provides extra support for low income persons who pay a $1,000 non-concessional (ie non-deductible) superannuation contribution to a superannuation fund including a self-managed superannuation fund. The support takes the form of an additional co-contribution of up to $1,000 cash, paid to the fund by the Federal Government on lodgment of the member’s income tax return.

McMasters’ recommends doctors consider whether they can arrange a $1,000 non-concessional contribution for low income related persons, such as spouses, children over age 15, and parents. Doing this achieves up to a $1,000 cash immediate return on the investment, and also means that future investment earnings are based on $2,000, not $1,000, which means growth compounds faster than otherwise would have been the case.

The $1,000 contribution and the $1,000 co-contribution vest in the related person, and do not belong to the doctor. But since these amounts are relatively small, and we take a macro-family view of financial planning anyway, we do not see this as being an issue.

The McMasters’ standard SMSF trust deed (and almost all other SMSF trust deeds) permits superannuation co-contributions.

So, if a related person derives taxable income of $30,342 or less and personally contributes $1,000 in non-concessional contributions, the Federal Government match the $1,000 non-concessional contribution with the maximum co-contribution of $1,000.

A sliding scale applies the related person derives taxable income of more than $30,342.

Eligibility

To qualify for the co-contribution, the member needs to:

receive 10% or more of total income (assessable income and reportable fringe benefits) from employment, carrying on a business, or a combination of both
have total income from all sources of less than $60,342 in the 2008-2009 financial year
lodge an income tax return for the year
be under age 71 at 30 June
not have held an eligible temporary visa at any time in the year, and
make personal, after-tax contributions to a complying super fund.
The co-contribution is like a non-concessional contribution and is added to the member’s tax-free component, which means it:
is not subject to contributions tax
is taxed when withdraw from the fund at retirement.
The co-contribution is not be included in the member’s non-concessional contribution limits.