The Low Income Superannuation Contribution, or LISC, was brought in by the previous government to help people on low-incomes to save for retirement by offsetting contributions tax paid on their concessional super contributions, including superannuation guarantee paid by their employer. However, it may be short-lived, as the current government has passed legislation which will stop the LISC after the 2016/17 financial year.
Update: the Government has proposed the Low Income Superannuation Tax Offset (LISTO), which would replace the LISC.
The Low Income Super Contribution is effectively a rebate of contributions tax for people on under $ 37,000 per year, up to a limit of $500. At the old rate for superannuation guarantee of 9% these numbers worked out – so someone earning $ 37,000 with 9% super guarantee would have $ 3,330 in employer super contributions, which would be taxed at 15%, or $ 499.50.
Note that the $500 is a cap, not the amount everyone eligible will receive. The amount of Low Income Super Contribution actually received is based on the amount of contributions tax. So, for example, a person earning $ 20,000 in 2012/13 would receive $ 1,800 in 9% super guarantee, and so the Low Income Super Contribution would be $ 270, equal to the contributions tax.
However the Low Income Super Contribution rules have not been updated to take account of the higher super guarantee rates of 9.25% in the 2013/14 financial year and 9.50% for the 2014/15 year. It is unclear why this was not taken into account in the original drafting of the legislation, given that the increase in superannuation guarantee was already scheduled at the time.
See the article: LISC should be indexed to superannuation guarantee
The Low Income Super Contribution also has a lower limit of $10, according to the ATO “if you’re eligible for less than $10, we will round this up to $10.”
The ATO also pays the Low Income Super Contribution whether someone does or doesn’t lodge a tax return for a year. Where a person does not lodge a tax return, such as where it is not required due to their level of income, the ATO will calculate their eligibility for the LISC “using information we hold about your income, and information from your super fund”.
Also, eligibility for the Low Income Super Contribution requires that “10% or more of your total income comes from business and/or employment “.
The calculation of the Low Income Super contribution applies to any kind of concessional contribution, not just superannuation guarantee.
People on temporary resident visas are not eligible for the Low Income Super Contribution, though the ATO says “New Zealand citizens in Australia are eligible for the payment”.
Note that there is no phase-out for the Low Income Super Contribution, if someone has adjusted taxable income of $ 37,001 in the year they will not receive any LISC. Also note that the $ 37,000 limit is based on the Adjusted Taxable Income of the taxpayer.
To assist taxpayers the ATO have published a Low Income Superannuation Contribution (LISC) calculator.
One of the ways that the Low Income Superannuation Contribution is a superior policy to the co-contribution is that it does not require action on the SMSF members part. Extra super contributions do not need to be made, instead the payment is automatic, and means that many people on lower incomes would not pay more tax on their compulsory super contributions than their salary and wages.
The Low Income Super Contribution first applied in the 2012/13 financial year, and is set out in Part 2A of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003.
Attempts to repeal the Low Income Super Contribution
It was the current Government’s intention to repeal the Low Income Super Contribution so that it would only apply for contributions in the 2012/13 financial year. However this legislation failed to pass the Senate and so a deal was made to repeal the Minerals Resource Rent Tax and keep the Low Income Super Contribution for the 2012/13 to 2016/17 financial years.
According to the explanatory memorandum to the MRRT repeal, the
“The LISC was funded with the expected revenue from the MRRT, and is being repealed with the removal of the MRRT. The Government will revisit incentives in superannuation for low income earners once the Budget is back in a strong surplus.”
The first attempted repeal of the Low Income Super Contribution was in November 2013. However this bill, the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 was blocked by the Senate.
In June 2014 the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2] was introduced to the parliament, which also included a repeal of the Low Income Super Contribution. However the bill was amended by the Senate to remove, among other measures, the LISC repeal. Though it passed the Senate in this amended form the House of Reps refused to accept the amendments, and the Senate refused to pass the bill without them, and so the attempt to repeal the LISC failed a second time.
The Government had intended to repeal the LISC as part of the third MRRT repeal attempt, under the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014. However a deal was made in the Senate, including with members of the Palmer United Party, to keep the LISC temporarily in exchange to repealing the MRRT. Part of this deal included further slowing of increases to the superannuation guarantee rate.
It appears that some of the measures kept temporarily in the bill, such as the SchoolKids bonus, were negotiated so they would expire after the next federal election, which needs to be held before 14 January 2017. It is possible that at future changes could be made to extend the LISC beyond 30 June 2017.
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