S
ometimes what should be glaringly
obvious is not that apparent.
Everyone knows that saving through
super is tax effective because concessional
contributions are taxed at only 15%. But
what if the 15% is higher than your
personal income tax rate?
It’s hardly an incentive, or fair for
that matter.
From the beginning of July, the low
income superannuation tax offset (LISTO)
takes effect. Those with an adjusted taxable
income of up to $37,000 will receive a
refund on the 15% super contributions
tax up to a maximum of $500.
The tax offset, previously called the
low-income super contribution, was set
to expire at the end of June 2017 but was
extended by the government late last year.
In effect, it means low-income workers will
pay no contributions tax on their employ-
er’s compulsory super guarantee.
According to the tax office, the offset
will benefit 3.1 million Australians in the
2017-18 financial year, almost two-thirds
of whom are women. The ATO says this
is important because women, on average,
have lower super balances than men,
despite having higher life expectancies.
“The superannuation system was
designed to encourage Australians to save
for their retirement,” it says. “This is why
superannuation is taxed at a lower rate
than income outside of superannuation.
However, for low income earners the 15%
tax on superannuation contributions means
they pay more tax on their super contribu-
tions than on their other income.” The off-
set addresses this inequitable outcome.
“The purpose of LISTO is that the 15%
contributions tax will be refunded so these
individuals are not penalised for making
contributions to super,” says Lindzi Caputo,
manager, personal wealth management, at
HLB Mann Judd. “It ensures they are not
paying more tax on their contributions
than what they would pay if they received
that income in their own name. The refundcan be on the super guarantee their
employer pays on their behalf. Or if they
are self-employed, it could also be for a con-
tribution they make to their super fund as
a personal tax deduction.”
One of the great advantages of the offset
is that you don’t have to do anything spe-
cial to claim the refund, says Caputo.
“Once you’ve lodged your tax return, the
ATO will calculate your adjusted taxable
income, and if you are eligible it will put
the refund directly into your super account.
“If your income was under the $18,200
tax threshold and you didn’t need to lodge a
tax return, the ATO will still work out your
eligibility from your super fund and other
information it collects and then pay the
refund back into your super fund.”Caputo says there was a lot of concern
last year that the government might drop
the tax offset but it didn’t in the end. “It
makes it fairer for these individuals, allow-
ing them to build a super balance without
being penalised for it,” she says.Vita Palestrant was editor of the Money
section of The Sydney Morning Herald
and The Age. She has worked on major
newspapers overseas.Fair go for everyone
SUPER Vita Palestrant
The tax offset will boost the super balances
of low-income earners by up to $500
STUDENT GETS AN
AUTOMATIC REFUND- Domenik is a university student and
will earn $18,000 as a part-time retail shop
assistant in the 2017-18 income year. He
will get a superannuation guarantee
contribution of $1710 (9.5% X $18,000). - As Domenik will earn below the tax-free
threshold of $18,200 for that income year,
he may not be required to submit an
income tax return. - The ATO receives information about
Domenik’s income and his employer’s
superannuation contributions from his
member contribution statement. - It is reasonably satisfied that
Domenik is eligible for the low income
superannuation tax offset and makes the
payment of $256.50 to his super fund,
in effect refunding the 15% contributions
tax ($1710 x 0.15). - The offset will normally go into a super
account but can be paid in other ways. For
example, it can be paid to the individual
if they have retired and have no eligible
super account, or to the estate if they
have passed away.
SOURCE: SUPERANNUATION BILL 2016
OFFSET CHECKLIST
CRITERIA
MET? AMOUNT
Super fund has my TFN? Yes
Made concessional super
contributions? Ye s $ 3 3 2 5
Had an adjusted taxable
income of $37,000
or less?Yes $35,000Received at least
10% of income from
employment, business or
a combination of both?Ye sHad not held a temporary
resident visa during
the year?Ye sHOW IT WORKS
Katherine works part time as a nurse and will be paid
$35,000 in the 2017-18 financial year. Her employer
makes super contributions of $3325 on her behalf
(9.5% of $35,000).
Because her adjusted taxable income is
below $37,000 she is eligible for the low income
superannuation tax offset and will receives $498.75
in her super account – calculated as $3325 x 0.15.
The 15% tax on her contributions going into super
is refunded.
Source: ATO