Low Income Superannuation Contribution (LISC)
The Low Income Superannuation Contribution (LISC) is a government super payment which is meant to offset up to $500 of the contributions tax paid by low income earners. It applies for the 2012/13 to the 2016/17 financial years, after it was repealed by the Government. It is likely to be replaced by the Low Income Superannuation Tax Offset (LISTO).
Under new regulations superannuation funds are no longer required to separately report amounts of Low Income Superannuation Contributions (LISC) received to members.
Previously regulation 7.9.20 of the Corporations Regulations 2001 said that super fund periodic statements must separately state the amounts of the co-contribution and LISC received.
A Treasury consultation submission by the Association of Superannuation Funds of Australia (ASFA) has revealed that the Government plans to extend an exemption for superannuation funds from needing to separately report the Low Income Superannuation Contribution (LISC) to members.
The ASFA submission says they were asked for comment on the draft Tax and superannuation Laws Amendment (2015 Measures No.1 – low income superannuation contributions) Regulation 2015 on 5 February 2015.
The Australian Institute of Superannuation Trustees (AIST) has called on the Government to not change the requirement to separately disclose the Low Income Superannuation Contribution (LISC).
The AIST claims that the Government is planning to repeal regulations which require that the LISC be separately disclosed on super fund member statements. If repealed the LISC could be bundled with other concessional superannuation payments, such as the government co-contribution.
The AIST is concerned this will “effectively mask the benefits of LISC to millions of members”
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.
When the Low Income Superannuation Contribution (LISC) was introduced it was meant to offset the contributions tax low-income earners paid on their superannuation. This was because low-income earners would pay more on their super contributions then they would on wages received. However because the LISC was set at a fixed amount, $500, and didn’t take account of scheduled increases in the rate of superannuation guarantee, as the SG rate increases the LISC won’t offset all contributions tax for some low-income earners.Read More »LISC should be indexed to increases in super guarantee
Government changes to legislation mean that the superannuation guarantee is likely to stay at 9.5% until 1 July 2021, and only reach 12% in July 2025.
The Government made a deal with the Palmer United Party to pass the repeal of the Minerals Resource Rent Tax. As part of the deal the LISC will be kept for a couple more years, but increases in the superannuation guarantee will be further slowed.
This is contained in the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014, which is the third attempt to repeal the MRRT, change the rate of the super guarantee and repeal the Low Income Superannuation Contribution (LISC).
On Monday, first the Government moved to set aside the second MRRT repeal bill, after the Senate insisted on keeping the LISC and the currently scheduled increases in the super guarantee. Then at 12:36 pm the new bill was introduced to the Parliament, by just after 2:00 pm it had passed the House of Representatives.
The four points of the plan are:
- Division 293 tax to apply to everyone on the highest tax rate bracket
- No-one in the 19% tax bracket to pay contributions tax
- Introduce lifetime contribution caps in addition to annual contributions caps
- Limit tax-free status of income supporting a pension via an asset cap
Currently Division 293 tax increases the contributions tax for high income earners, those earning more than $300,000, by 15%. Under Mercer’s plan this would extend to people earning more than $180,000. Based on the the 2014/15 tax rates these people would pay 30% on their contributions and have a marginal tax rate of 45%.
Mercer recommends that “nobody pays more tax on their concessional contributions than they do on their income”, and a key part of this would be changes to the Low Income Superannuation Contribution (LISC), so that the contributions tax for someone on the 19% tax bracket or lower would be 0%. However this is unlikely to find favor with the Government, given the announced intention to repeal the LISC as part of the Minerals Resource Rent Tax repeal.
Mercer also recommends implementing a lifetime contributions cap while keeping the annual contributions caps to “limit the cost of the tax concession in any one year”:
“for example a person’s annual cap could be increased by half the unused amount from the previous year but with a limit of say three times the annual cap in any single year. A similar approach cap could apply to non-concessional contributions thereby removing the existing complex three year rule.”