Even with the guaranteed 9.5% super contributions (if you earn at least $450 per month), that’s obviously going to be less money if your earnings are low. Fortunately, the government has schemes in place to help low income earners save, providing extra contributions and refunding contributions tax.
There are two key superannuation measures available to those with a low income; the low income super tax offset (LISTO) and government co-contributions. Both can help build super by putting more money into an individual’s fund, increasing the amount earning a return.
What is the low income super tax offset?
The low income super tax offset helps to reduce the effect of tax on super contributions, effectively meaning low income earners could pay no tax on their super contributions. The tax offset applies to concessional contributions, like mandatory employer contributions, that are made before tax.
Concessional contributions can also include salary sacrificing and personal contributions that you claim a tax deduction for. These contributions come out of your pre-tax income and the super fund will pay tax on these amounts at a rate of up to 15%.
However, if you earn $37,000 or less a year, you could automatically be entitled to a low income super tax offset of up to $500 a year. This means if you earn exactly $37,000 and your employer pays 9.5% super guarantee on this amount, instead of your super fund paying $527.25 a year in tax on these concessional contributions, it will effectively only pay $27.25. Low income earners could end up not paying any tax at all on their super contributions.
You don’t need to take any actions to claim the LISTO, as the Australian Tax Office should determine your eligibility automatically, provided you have linked your Tax File Number to your super account. You can find out more about the LISTO on the ATO’s website.
What are government co-contributions?
If you earn less than $51,813 a year and make personal after-tax contributions to your super, the government co-contribution scheme can help boost your super.
To be eligible under this scheme, you need to make non-concessional super contributions in any given financial year. Non-concessional contributions are made from income you have already been taxed on, and therefore no additional tax is taken out when you place it into your super fund. You can contribute regularly throughout the year or make a single lump-sum payment.
If you earn less than $36,813 a year the government will make a co-contribution of 50c for every $1 you contribute, up to a maximum co-contribution of $500. For example, if you earn $30,000 during a financial year and make a $600 non-concessional contribution, then you could receive a government co-contribution of $300. If you instead put in $20 a week, you could make a total non-concessional contribution of just over $1,000 during the financial year and receive the maximum $500 co-contribution.
The maximum benefit decreases gradually if you earn more than $36,813, and cuts out entirely if you earn more than $51,813. You can calculate your superannuation co-contribution entitlement using the ATO’s calculator.
To receive the government co-contribution, you need to ensure you lodge a tax return for the financial year, after which the ATO will automatically determine how much extra you are entitled to. You can find out more about the co-contribution scheme here.