Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)Chapter 2 Temporary reduction in the Government co-contribution
Outline of chapter
2.1 Schedule 2 to this Bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contribution Act) to reduce the matching rate and maximum co-contribution for eligible personal superannuation contributions made in the 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 income years.
Context of amendments
2.2 The co-contribution matches eligible personal superannuation contributions made by low to middle income earners. Since 1 July 2004, the matching rate and maximum co-contribution payable have been 150 per cent and $1,500, reduced by 5 cents for each dollar by which the individual's total income for the income year exceeds the lower co-contribution income threshold in the relevant year. The lower income threshold is $31,920 for 2009-10.
2.3 In the 2009-10 Budget, the Government announced a temporary reduction in the matching rate and maximum Government co-contribution payable for eligible personal superannuation contributions. The matching rate and maximum co-contribution will revert back to the levels of the 2008-09 income year in the 2014-15 income year and for later income years.
Summary of new law
2.4 The Government will reduce the matching rate and maximum co-contribution that is payable on an individual's eligible personal superannuation contributions made in the 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 income years.
Comparison of key features of new law and current law
| New law | Current law |
| For the 2009-10, 2010-11, 2011-12 income years, eligible personal superannuation contributions will be matched at one dollar for every dollar contributed up to the maximum co-contribution of $1,000 for individuals on incomes at or below the lower income threshold. The maximum co-contribution will be reduced by 3.333 cents for each dollar by which an individual's total income for the income year exceeds the lower income threshold.
For the 2012-13 and 2013-14 income years, eligible personal superannuation contributions will be matched at $1.25 for every dollar contributed up to a maximum co-contribution of $1,250 for individuals at or below the lower income threshold. The maximum co-contribution will be reduced by 4.167 cents for each dollar by which the individual's total income for the income year exceeds the lower income threshold. For the 2014-15 and later income years, eligible personal superannuation contributions will be matched at $1.50 for each dollar contributed up to a maximum Government co-contribution of $1,500 for individuals on incomes at or below the lower income threshold. The maximum co-contribution will be reduced by 5 cents for each dollar by which the individual's total income for the income year exceeds the lower income threshold. |
Eligible personal superannuation contributions made since the 2004-05 income year are matched by the Government at $1.50 for each dollar contributed up to a maximum Government contribution of $1,500.
The maximum co-contribution is payable for individuals on incomes at or below the lower income threshold. For the 2004-05 and later income years, the maximum co-contribution ($1,500) is reduced by 5 cents for each dollar by which the individual's total income for the income year exceeds the lower income threshold. |
| There will be no change to the indexation provisions. | In 2009-10 the lower and higher income thresholds are $31,920 and $61,920 respectively.
The lower income threshold is indexed annually to average weekly ordinary time earnings and the higher income threshold is increased by the indexation increase in the lower income threshold for that year. |
Detailed explanation of new law
2.5 The co-contribution is payable for eligible individuals who make personal undeducted contributions into superannuation. The maximum co-contribution is payable for individuals whose income is at or below the lower income threshold. The co-contribution phases out for individuals whose income is up to the upper income threshold ($61,920 in 2009-10).
2.6 Subsection 9(1) of the Co-contribution Act sets out the basic rule for the matching of eligible personal superannuation contributions by the Government co-contribution.
2.7 Section 10 of the Co-contribution Act sets out the maximum amount of the Government co-contribution payable for an individual for an income year, and the rate at which this amount reduces where an individual's income is above the lower income threshold.
2.8 Subsection 9(1) and section 10 will be amended to provide for a temporary reduction in the co-contribution matching rate and maximum co-contribution. A corresponding amendment will provide for the rate at which the maximum co-contribution is reduced where an individual's income is above the lower income threshold.
2.9 For the 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 income years, the Government co-contribution will continue to be equal to 150 per cent of the eligible personal superannuation contributions made by an individual during those years. [ Schedule 2, item 1, paragraph 9(1)(b )]
2.10 The maximum Government co-contribution remains at $1,500 for eligible personal superannuation contributions made in the 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 income years by individuals with incomes under the lower income threshold. The maximum co-contribution in those years will continue to be reduced by 5 cents for each dollar by which the individual's total income exceeds the lower income threshold in the relevant year. [ Schedule 2, item 4, subsection 10(1A )]
Example 2.1
Kristen and her sister Elicia work for their mother Robyn's company.
In 2009-10 Kristen makes a $1,000 personal contribution to superannuation and does not claim a deduction for this contribution. Her assessable income for that year is less than the lower income co-contribution threshold. The Commissioner of Taxation determines that Kristen is eligible for a Government co-contribution and pays $1,500 into Kristen's superannuation account.
Elicia also makes a $1,000 personal contribution for which she does not claim a deduction. Her assessable income ($56,920) in that year is $25,000 greater than the lower income threshold. The Commissioner of Taxation determines that Elicia is also eligible for a reduced co-contribution of $250 and pays this amount into Elicia's superannuation account.
2.11 For the 2009-10, 2010-11 or 2011-12 income years, the Government co-contribution matching rate will be equal to 100 per cent of the eligible personal superannuation contributions made by an individual during those years. [ Schedule 2, item 3, paragraph 9(1)(c )]
2.12 For eligible personal superannuation contributions made in the 2009-10, 2010-11 or 2011-12 income years the maximum Government co-contribution will be $1,000 for individuals with incomes below the lower income threshold. The maximum co-contribution will be reduced by 3.333 cents for each dollar by which the individual's total income exceeds the lower income threshold in the relevant year. [ Schedule 2, item 5, subsection 10(1B )]
2.13 For the 2012-13 or 2013-14 income years, the Government co-contribution matching rate will be equal to 125 per cent of the eligible personal superannuation contributions made by an individual during those years. [ Schedule 2, item 3, paragraph 9(1)(d )]
2.14 For eligible personal superannuation contributions made in the 2012-13 or 2013-14 income years the maximum Government co-contribution will be $1,250 for individuals with incomes below the lower income threshold. The maximum co-contribution will be reduced by 4.167 cents for each dollar by which the individual's total income exceeds the lower income threshold in the relevant year. [ Schedule 2, item 5, subsection 10(1C )]
2.15 For the 2014-15 and later income years, the Government co-contribution matching rate will be equal to 150 per cent of the eligible personal superannuation contributions made by an individual during those years. [ Schedule 2, item 3, paragraph 9(1)(e )]
2.16 For eligible personal superannuation contributions made in the 2014-15 and later income years the maximum Government co-contribution will be $1,500 for individuals with incomes below the lower income threshold. The maximum co-contribution payable will be reduced by 5 cents for each dollar by which the individual's total income exceeds the lower income threshold in the relevant year. [ Schedule 2, item 5, subsection 10(1D )]
Example 2.2
Following on from Example 2.1, Kristen and Elicia continue to make $1,000 personal contributions in subsequent years.
Assuming that Kristen's income is always less than or equal to the lower income threshold and Elicia's income is always $25,000 greater than the lower income threshold, the following table sets out the co-contribution that will be payable to Kristen and Elicia as a result of the amendments in this Bill.
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Kristen's co-contribution $1,500 $1,000 $1,000 $1,000 $1,250 $1,250 $1,500 Elicia's co-contribution $250 $168 $168 $168 $209 $209 $250
2.17 Consistent with the current Co-contribution Act these new provisions will have effect subject to :
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- increases in the lower and higher income threshold (existing section 10A);
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- the payment of a minimum co-contribution (existing section 11); and
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- the treatment of late and under-paid co-contribution payments (existing sections 12, 21, 22 and 23);
[ Schedule 2, item 6, subsection 10(2 )]
Application and transitional provisions
2.19 The amendments made by Schedule 1 will apply to contributions made in the 2009-10 and later income years. [ Schedule 2, item 7 ]