The federal government has introduced a new superannuation contribution benefit for individuals earning under $37,000 in 2013. The newly coined ‘Low Income Super Contribution,’ abbreviated as LISC, is a benefit payable to the superannuation accounts of lower income earners to maintain a tax incentive for individuals on a marginal tax rate of 15%.
Superannuation historically had a flat tax rate for contributions of 15%. With the lowest marginal tax rate of the same value, this provided lower income earners little concession for their contributions when compared to higher income earners who could save up to 31.5%. The Low Income Superannuation Contribution along with other measures levels the concessions available to different income levels and increases the benefits available to lower income levels.
The Low Income Super Contribution is designed to rebate the contributions tax payable on employer superannuation contributions, effectively reducing the superannuation contributions tax for individuals earning under $37,000 from 15% to 0%.
Concessional contributions that attract contributions tax (including mandatory employer contributions) are eligible for the Low Income Superannuation Contribution.
The Low Income Superannuation Contribution payable matches the value to the contributions tax payable (in essence a refund of contributions tax) and for an individual earning $37,000, the Low Income Super Contribution payable is $500 based on an employer contribution of $3,300.
Low Income Superannuation Contribution | Eligibility
The benefit is paid directly to the superannuation account of the individual and it is expected that the payment will be made the following financial year on submission of a tax return. In order to be eligible for the Low Income Superannuation Contribution an individual must;
- Have an adjusted taxable income of less than $37,000
- Be a permanent resident of Australia
- Earn more than 10% of total income from being an ‘employee’ or from carrying on a business.
A negative aspect of the Low Income Superannuation Contribution scheme is it being primarily funded by a reduction in the long running Government Co-Contribution Scheme from $1,000 to $500. In spite of the reduction in the Government Co-Contribution, individuals earning less than $37,000 will see the full benefit of their employer contributions credited to their accounts, with the ongoing effect of increased future balances.
The Low Income Superannuation Contribution will assist in increasing superannuation balances and the retirement benefits available to lower income earners. Given the introduction of this scheme and changes to the Government Co-Contribution Scheme, individuals need to review their contribution strategies.
Changes to superannuation contribution entitlements can impact your retirement. We can only give general information and as such, before making any decisions, you need to seek advice from a financial adviser!
About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!