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A year later than expected ,the Federal Government has secured agreement to introduce two of its key 2001 election superannuation promises. The government has traded off part of its promised reductions in the superannuation surcharge for a more generous co-contribution arrangement for personal super contributions. In the process, about 600,000 taxpayers now have the opportunity to obtain up to $1,000 of matching government contributions to their personal super. The government had proposed a maximum $1,000 co-contribution payable at incomes up to $20,000 a year, reducing by 8 per cent of income above that level. This meant taxpayers earning more than $32,500 a year would not be eligible for the co-contribution. Now the maximum $1,000 matching government contribution is available at taxable incomes up to $27,500. It is phased out at 8 per cent of additional taxable income up to an income level of $40,000 a year. The matching government contribution now offers all lower-income taxpayers a major incentive to contribute to super. This measure is available only to wage-earners receiving employer super contributions and contributing to superannuation as well. Putting $1,000 into superannuation and receiving a matching contribution of $1,000 from the government is the most attractive super subsidy ever offered. It is, for example, much more generous than the 18 per cent rebate on the first $3,000 of contributions made to the account of a low-income spouse and the previous 10 per cent rebate on personal super contributions up to a maximum of $1,000. For taxpayers eligible for the co-contribution, personal super contributions will be treated more favourably than additional salary sacrifice contributions. It will certainly pay lower income earners, even at relatively young ages, to contribute to their superannuation. By varying the minimum rate of co-contribution and the income levels at which it applies, the government now has an effective tool to encourage people to contribute to their own superannuation. Paying $1,000 off a home mortgage would, by comparison, save only the annual interest charge and it would take about 12 years before the $1,000 mortgage repayment reached a value equivalent to the matched $1,000 superannuation contribution. Investors will need to examine the fine print on the legislation before rushing to make personal super contributions, but they have plenty of time because personal super contributions will not have to be made before June, 2004. Tony Martin – Director |
+ 61 8 8333 1944
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