Su­per: Vita Palestrant

The tax off­set will boost the su­per bal­ances of low-in­come earn­ers by up to $500

Money Magazine Australia - - CONTENTS - Vita Palestrant was edi­tor of the Money sec­tion of The Syd­ney Morn­ing Her­ald and The Age. She has worked on ma­jor news­pa­pers overseas.

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.

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