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Low Income Super Contribution and Super Co-contribution

Government Super Contributions

Low-to-middle income earners can take advantage of this offer from the government to boost their super savings. There are two ways of obtaining a contribution into your super account. You can obtain this through the low income super contribution (LISC) and the super co-contribution and they are not mutually exclusive. This was implemented to help boost the super of low-to-middle income earners.

Low Income Super Contribution

From 1 July 2012 the government can pay up to $500 per financial year to help low income earners save for their retirement. This is calculated by 15%*Employer Super Contributions.

In order to be eligible for LISC:

  • Concessional contributions must have been made
  • Adjusted taxable income < $37,000
  • Not a holder of a temporary resident visa
  • >= 10% total income derived from business or employment
  • Amount payable by government is $20 or more

If you meet these criteria, you don’t need to do anything else. Lodge your income tax return like normal and the government will pay a LISC to your super fund if you’re eligible. This payment can take up to 14 months to reach your fund from the end of the financial year.

Example: Taxable Income is $33,000 and no deductions are made. The employer contribution is 9% of taxable income which equals $2,970. As there are no deductions made, the taxable income is the same as the adjusted taxable income. With all the other criteria being met, the government will pay 15%*$2,970 = $445.50 into the super account.

Super co-contribution

With super co-contribution, the government will match your personal contributions up to a maximum amount. Be aware that certain types of super contributions don’t attract a super co-contribution. These are:

  • Super guarantee contributions paid by employer
  • Salary sacrifice contributions
  • Personal super contributions where a deduction has been claimed and allowed
  • Super contributions made by your spouse or any other party on your behalf

If the contribution does not match any of the above, you have to pass the following points In order to be eligible:

  • Made an eligible super contribution
  • Total income is less than the higher income threshold
  • 10% or more of the total income is derived from business or employment
  • Less than 71 years old at the end of the income year
  • Not a holder of a temporary resident visa
  • Lodged a tax return

Total income and the 10% rule will now be explained in more detail.

Firstly, total income. This is a different value from assessable income or adjusted taxable income. It is found by:

Total Income = Assessable income + reportable fringe benefits total + total reportable employer super contributions – deductions

Secondly, the 10% rule is that 10% of total income must come from employment related activities or you do not qualify for the super co-contribution. These include:

  • Salary/wages
  • Director fees as a company director
  • Other employment related income
  • Reportable fringe benefits
  • Reportable employer super contribution
  • Business income as a sole trader
  • Business partnership distribution

For most people this will not be an issue, however for example if you earn most, if not all, your income from interest or dividends then you cannot obtain a super co-contribution.

Calculating your super co-contribution

The thresholds, maximum entitlement, reduction rate and matching rate all factor into the calculations used to determine the super co-contribution.

For the 2012 Financial Year, these are:

  • Lower threshold - $31,920
  • Higher threshold - $61,920
  • Maximum entitlement - $1,000
  • Reduction rate – 3.333 cents
  • Matching rate – 100%

The government has made proposals, if passed by parliament, will change these figures. These are:

  • Lower threshold - $31,920
  • Higher threshold - $46,920.
  • Maximum entitlement - $500
  • Reduction rate – 3.333 cents
  • Matching rate – 50%

There are two calculation methods used to determine your super co-contribution.

Calculation 1

Co-contribution = Personal super contributions*matching rate

Calculation 2

Co-contribution = Maximum co-contribution entitlement – ([Total income – lower threshold])*Reduction rate)

If your total income is less than the lower threshold, only Calculation 1 is used. If your total income is in-between the two thresholds, the smaller amount of the two will be your co-contribution amount.

Example 1: Using the 2012 Financial Year with personal super contributions of $600 and total income of $20,000.

Total income is lower than the lower threshold so only calculation 1 is needed.  The matching rate is $1 therefore you will receive $600 for the co-contribution.

Example 2: Using the 2012 Financial Year with a total income of $51,000 and personal super contributions of $900.

From calculation 1 we get a co-contribution amount of $900.

From calculation 2 we get $1000 – ([$51,000 - $31,920]*0.03333) which equals $635.95 rounded to the nearest 5 cents.

As Calculation 2 yields the lower amount, the co-contribution will be $635.95.

Note: If the entitlement you obtain is greater than $0 and less than $20 you will obtain $20 for your co-contribution.