By Mark Silvester

The low income super contribution (LISC) is a measure introduced by the Government to ensure low income earners (those earning under $37,000 per annum) effectively pay no contributions tax on concessional contributions starting in the 2012/13 financial year.

Who is eligible? Firstly, you will need to satisfy the following criteria:

• concessional contributions have been made for you for the year to a complying super fund
• your adjusted taxable income is $37,000 or less (if you are required to lodge a tax return)
• you are not a holder of a temporary resident visa (New Zealand citizens in Australia do not hold a temporary resident visa and, as such, are eligible for the payment)
• 10% or more of your total income is derived from business or employment
• the amount payable needs to be $20 or more.

Note that ‘adjusted taxable income’ includes reportable employer contributions (those in addition to SGC) and/or a person’s own deductible contributions (plus some other items). In other words, you can’t salary sacrifice to get yourself under the $37,000 threshold.

What is it? The LISC is a superannuation payment of up to $500 per financial year.

The LISC is 15% of the concessional (before tax) contributions you or your employer makes from 1 July 2012, up to a maximum payment (for a financial year) of $500. Note the minimum is $20.

Example: Jill earns $30,000 per annum in part time employment, and as such she receives $2,700 in superannuation guarantee contributions from her employer. Jill does not make any salary sacrifice contributions, or have any other items that add to her adjusted taxable income. Jill also satisfies all the eligibility criteria for the LISC.

In this case, Jill’s SMSF would add the $2,700 of employer contributions onto her assessable income in the SMSF, and would be taxed at 15%. This equals $405.

The LISC is exactly the same calculation. That is:

Concessional contributions x 15%: $2,700 x 0.15 = $405

The net result is that Jill has been refunded the amount of contributions tax her SMSF paid on her employer contributions for that financial year.

How do you get it? The ATO state the following in terms of how they administer the LISC:

“You do not need to do anything specifically to get the low income super contribution (LISC). If you lodge an income tax return, you will receive your LISC in your super account when we have processed your income tax return and received information from your super fund about your super contributions. If you do not lodge an income tax return, we will work out your eligibility using contributions information from your super fund along with other information we collect. As we will pay the LISC directly into your super fund, you need to make sure your super fund has your tax file number, as we cannot send your LISC to a fund that does not have your tax file number.

Your super fund will let you know on your account statement that you have received your LISC. It may take up to 14 months from the end of the financial year for you to receive your payment.”

Two situations with slightly different rules: 1. If you have reached preservation age (currently 55) and you are retired, or you are over 65, you can apply to have your LISC paid directly to you. A direct payment form will be available from the end of the 2012/2013 financial year.

2. If a person dies part way through a financial year, then the estate of the deceased person may still be able to claim the LISC due to any concessional contributions made before their death. Eligibility is the same, however the income test is pro-rated. For example, if a person died exactly a quarter way into the financial year and had already accumulated an adjusted taxable income of $5,000, their adjusted taxable income would be considered to be $20,000 in terms of the LISC eligibility tests.

Don’t forget the co-contribution Whilst the LISC is designed as a way to provide many more people with superannuation contribution concessions, the Government co-contribution is also still in effect, and you can still access this even if you benefit from the LISC.

Whilst the LISC applies to concessional contributions, the co-contribution applies to non concessional (after tax) contributions. Note however the Government intend on halving the matching rate from 100% to 50% (and hence halving the maximum entitlement), and lowering the higher income threshold to $46,920. The lower income threshold (where you would get the full matching rate) remains at $31,920.

If you would to find out more about LISC, call us at Power Tynan.

Source: this article has been sourced from The SMSF Review: http://www.thesmsfreview.com.au/c-low-income-super-contribution.html