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Superannuation tax refund: 10 things you should know

SUPER ALERT! In a welcome backflip, as part of its 2016 Federal Budget announcement on 3 May 2016, and confirmed with the re-election of the Coalition government in July 2016, the Coalition government has announced it will extend the Low Income Super Contribution (LISC) beyond its legislated expiry date of June 2017. The only change is that it will be renamed as the Low Income Superannuation Tax Offset (LISTO). Further, since both the ALP and the Coalition support this measure, you can assume the extension of the policy will happen, subject to legislation.

If you earn less than $37,000, and you, or your employer, makes concessional (before-tax) contributions to your super fund, you may get a refund of up to $500 a year for the contributions tax deducted from the super contributions. More specifically, if your ‘adjusted taxable income is less than $37,000, and concessional contributions are made to your super account, then you may get a super tax refund. An explanation of the meaning of ‘adjusted taxable income’ appears later in this article.

This special contribution from the government, known as the Low Income Super Contribution (LISC) was originally payable only for the 2012/2013, 2013/2014, 2014/2015, 2015/2016 and 2016/2017 years. The LISC will now be extended indefinitely, but from 1 July 2017, it will be renamed the Low Income Superannuation Tax Offset (LISTO).

1. What is the super tax refund?

The Low Income Super Contributions (LISC) is a repayment of the 15% contributions tax paid on the concessional (before-tax) contributions, subject to a maximum refund of $500. The LISC took effect from the 2012/2013 financial year, which means the contributions tax deducted from any concessional contributions made on or after 1 July 2012, will be potentially refundable. If you’re eligible, the LISC is paid into your super account.

Note: Subject to legislation, the super tax refund will continue to apply beyond the 2016/2017 year and it will be renamed the Low Income Superannuation Tax Offset (LISTO).

2. Who is eligible for the LISC?

You are eligible for the LISC, if you satisfy the following conditions:

  • you have concessional (before-tax) contributions made to a complying super fund by your employer, or yourself during applicable financial years, namely during the 2012/2013 year, the 2013/2014 year, the 2014/2015 year, the 2015/2016 year, or the 2016/2017 year. The LISC applies for 5 years up to 30 June 2017. From 1 July 2017, the super tax refund will be renamed the Low Income Superannuation Tax Offset, but will have identical features to the LISC.
  • your ‘adjusted taxable income’ for the financial year is $37,000 or less. There are no plans to index the income threshold of $37,000, since it is linked to the marginal rate of income tax threshold.
  • you are not a temporary resident (according to the ATO, this means that you are not a holder of a temporary resident visa and note that New Zealand citizens in Australia are eligible for the LISC)
  • 10% or more of your ‘total income’ for the financial year is sourced from business or employment (this condition was added very late in the day to reduce the number of Australians eligible for the LISC)
  • Your LISC entitlement is $20 or more.

3. What is adjusted taxable income?

Just to make it complicated, adjusted taxable income is a contrived definition to ensure that Australians don’t manipulate their financial circumstances to try to become eligible for the LISC. According to the ATO, ‘adjusted taxable income is:

  • your taxable income (what appears on your tax return)
  • adjusted fringe benefits amount (total reportable fringe benefits amount x 0.535)
  • tax-free government pensions or benefits (this does not include private tax-free super pensions)
  • reportable super contributions (that is, reportable employer super contributions – such as salary sacrifice contributions (but not SG contributions), and deductible personal super contributions)
  • total net investment loss (that is net investment loss from rental property investments, and net loss from other financial investments )
  • target foreign income (foreign income not already included in your tax return)
  • deductible child maintenance expenditure (child support payments).

4. How does the LISC work?

The LISC process is supposed to work something like this:

  1. Your super fund must have your tax file number.
  2. You or your employer makes a concessional contribution during the financial year. If you’re employed, that will automatically include your employer’s Superannuation Guarantee contributions. If you negotiate a salary sacrifice arrangement, then those contributions may also be eligible for the LISC, although note that those salary sacrifice contributions are counted back when working out your adjusted taxable income.
  3. If you lodge an income tax return, the ATO will use the information in your tax return to calculate your adjusted taxable income.
  4. If you don’t have to lodge a tax return, you still don’t have to do much. The ATO will work out your adjusted taxable income, and hence your eligibility, from other sources.
  5. The ATO has published more details on the process of eligibility and payment on the ATO website (click on this link).

5. Can you give me an example of how the LISC works?

The ATO has provided one example on how the LISC will work. The ATO extract is set out below:

EXAMPLE

Julie earns $36,000 a year as a child care assistant. In the 2012-13 financial year, Julie’s employer makes a super guarantee contribution of $3,240 into her super fund. Julie lodges an income tax return which includes tax deductions of $1,000, resulting in an adjusted taxable income of $35,000 ($36,000 – $1,000). The table below shows how Julie worked out whether she was eligible for a LISC.

Under the LISC, Julie will receive a low income super contribution $486 (15% of $3,240), paid into her super fund.

How Julie worked out she was eligible for a LISC
Criteria met?Amount
Super fund has my tax file number?Yes
Made concessional super contributions?Yes$3,240
Had an adjusted taxable income of $37,000 or less?Yes$35,000
Received at least 10% of income from employment, business or a combination of both?Yes
Had not held a temporary resident visa during the year?Yes
Eligible for a LISC payment of more than $20 for the financial year?Yes

Table source: ato.gov.au 

6. What do I need to do to ensure I receive the LISC?

You do not need to do anything in particular. According to the ATO, if you’re eligible and you lodge an income tax return for the financial year, your LISC will be paid into your super account when the ATO has processed your tax return for that financial year, and also when the ATO has received information from your super fund about the level of contributions paid into your super account over the financial year.

If you don’t lodge a tax return, the ATO will work everything out from the super contributions information received from your super fund and from information the ATO collects from other sources and agencies.

7. How long do I have to wait before I receive the LISC?

The short answer is: a long time! According to the ATO, the process can take up to 14 months from the end of the financial year in which the super contribution was paid. When the LISC is paid into your account, the payment will appear on the member statement that your super fund sends you each year.

8. What if I have retired by the time the government has paid the LISC?

If you have retired (and have reached your preservation age – age 55 if born before July 1960, age 56 if born after June 1960 and before July 1961, and at least 57 years if born on or after 1 July 1961, and up to 60 years if born after June 1964) from the workforce, or you’re aged 65 or over (even when you’re still working), you can apply to have the LISC paid directly to you, rather than paid into your super account. The form to enable the direct payment of the LISC is available on the ATO website click here to access the form).

9. Is there a minimum amount of LISC that I can receive?

If your LISC entitlement is less than $20, then you will not receive any LISC payment. For administrative efficiency and to reduce costs for the government and super funds, the government has decided that your entitlement must be $20 or more before you get paid LISC. The maximum amount of LISC that you can receive is $500.

10. Where can I find more information about the LISC?

You can find more information on the LISC by visiting the ATO website, in particular, this link. You may also want to check out your super fund’s website which may have information on how the LISC operates.

Comments

  1. Colin Chinnery says:

    In your example, under “Can you give me an example of how the LISC works”, Julie receives a employer concessional contribution of $3,240, so surely this should be added back to give her an adjusted taxable income of $38,240?

    • Hi Colin
      Thanks for your question. The adjusted taxable income for LISC does not include Superannuation Guarantee contributions. If a person makes voluntary concessional contributions however, such as salary sacrifice contributions, then those SS contributions would be added back to a person’s income for the purposes of the LISC.
      Cheers
      The SuperGuide team

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