Super: Vita Palestrant
The tax offset will boost the super balances of low-income earners by up to $500
Sometimes 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 employer’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 contributions than on their other income.” The offset 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 refund can be on the super guarantee their employer pays on their behalf. Or if they are self-employed, it could also be for a contribution 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 special 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, allowing them to build a super balance without being penalised for it,” she says.