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:
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:
If the contribution does not match any of the above, you have to pass the following points In order to be eligible:
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:
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:
The government has made proposals, if passed by parliament, will change these figures. These are:
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.