This year due to only working for 3 months of the year I will eligible for a few low income tax and super benefits. So I thought it would be good to share some information about low income super benefits for others who might also be to take advantage. Opinions on super in the Australian finance community are quite split, however I think superannuation is great vehicle that can fit into any financial strategy and provide many benefits.
Currently there are two low income super benefits, LISTO (Low Income Super Tax Offset) and the Government Super Co-Contribution. Taking full advantage of both these measures can net you up to $1,000 in your super which is rather generous considering just one instance of this payment could build up to over $16,000 over 40 years. That’s what I believe the main benefit of these measures, if you can claim them at a young age, you can greatly increase your super for preservation age for relatively little outlay.
LISTO (Low Income Super Tax Offset)
LISTO was introduced in 2017 and replaced LISC (Low Income Super Contribution) however the only difference between the two is the name and minimum payment amount. The idea behind both these measures is to offset the concessional tax rate applied in superannuation accounts for low income earners. The eligibility criteria for this offset are, you:
- have had concessional contributions to your superannuation account (by yourself or your employer), non-concessional contributions don’t count,
- earned $37,000 or less in the financial year, this is your adjusted taxable income,
- have not held a temporary visa in the financial year, NZ citizens are still eligible,
- received 10% or more of your income from business and or employment.
LISTO is calculated by multiplying your concessional contributions by 0.15 (15%) with a minimum amount of $10 and maximum amount of $500.
Examples
- $15 concessional contribution X 0.15 = $1, LISTO will be $10.
- $2,000 concessional contribution X 0.15 = $300, LISTO will be $300.
- $5,500 concessional contributions X 0.15 = $825, LISTO will be $500.
Those earning under $35,000 will need to make extra personal contributions if they want to max out their LSITO. This is because their employer contributions won’t be enough to max out the LISTO amount unless their employer is paying boosted super contributions like government agencies.
For the most part you don’t need to worry about LISTO, as you will automatically get based on your employer super contributions. Only if you want to max it out will you need to worry about making personal contributions and lodging your notice of intent.
Government Super Co-Contributions
This measure has been around for many years to help promote people using superannuation and to boost their balances. The way it works is you need to make a personal non-concessional contribution and the government will boost it by up to 50% depending on your income. The maximum amount you can recieve is $500, and the minimum payment is $20. The eligibility rules are very similar to LISTO, you:
- made a personal contribution to your superannuation during the financial year,
- must have a total income under $53,564,
- received 10% or more of your income from business and or employment,
- have not held a temporary visa in the financial year, NZ citizens are still eligible,
- will be less than 71 years old at the end of the financial year,
- have a total superannuation balance under the transfer balance cap, $1.6 million for 19-20,
- have not contributed over your non-concessional contributions cap.
It is likely if you are eligible for one of these benefits you will be eligible for both to some degree.
There are actually two income thresholds for this contribution, the max at $53,564 and at $38,564. If you are below the lower threshold you will recieve the maximum $500, if you have made a $1,000 contribution. Otherwise the benefit will phase out between the two thresholds.
Examples
Below is a great table from the ATO showing what benefit you can expect to recieve at various contribution amounts and income levels. Unfortunately the formula for calculating the phase out is unavailable.
| Income | Personal super contribution of $1,000 | Personal super contribution of $800 | Personal super contribution of $500 | Personal super contribution of $200 |
|---|---|---|---|---|
| $38,564 or less | $500 | $400 | $250 | $100 |
| $41,564 | $400 | $400 | $250 | $100 |
| $44,564 | $300 | $300 | $250 | $100 |
| $47,564 | $200 | $200 | $200 | $100 |
| $50,564 | $100 | $100 | $100 | $100 |
| $53,564 or more | $0 | $0 | $0 | $0 |
As you can see from this table, if you income is below $38,564 it is best to make a contribution of $1,000 to take full advantage of the benefit. Of course this is only if you can afford the $1,000 contribution. If you are earning more, up to $53,564, it would be better to stick to a $200 or so contribution as you won’t recieve any benefits for contributing more than that. Either way you are making a great return on your money, 50%! And then that money will be growing in a tax advantaged environment. As I stated early, this money compounded over 40 years will be over $16,000 if you take advantage of both benefits. Especially if you can take advantage over a couple of years.
Same as the LISTO payment, you won’t need to do anything to get this contribution apart from lodging your tax return. Ensure you complete section A3 as they will use this information to determine your eligibility for both.
Summary
Both of these superannuation benefits are a great way for low income earners to boost their super accounts for retirement. They are especially beneficial for young workers, who have a lot of time on their side to use these benefits to boost there super for retirement. Contributing to super is a touchy topic in the FIRE space, however I think using it as part of your strategy is of utmost importance. And if you take advantage of these benefits for a few years, you could possibly greatly reduce the amount you need to contribute later in life. Of course, you should evaluate your financial situation before contributing to your super.
Hopefully this write up will help some people understand and take advantage of these government superannuation benefits. Please leave a comment if you have any questions or discussion points.