Fair go for low income earners

A modest change to a $500 tax offset would ensure everyone benefited equally

- Vita Palestrant

The super system’s tax incentives encourage people to save for their retirement and are especially generous for those on high incomes. To even things up, the federal government introduced the low-income superannuation tax offset (LISTO) for low-income workers.

Currently, if you earn $37,000 or less a year, the LISTO will refund you up to $500 for the 15% tax you’ve paid on your concessional (pre-tax) super contributions.

These include your employer’s compulsory contributions, called the super guarantee (SG), salary-sacrifice contributions you may make, or any contributions you make for which you claim a tax deduction.

The measure is designed to make the super system fairer and ensure you don’t pay more tax on your contributions than on the amount of income tax paid on your take-home pay.

You don’t need to apply for the rebate; it’s automatically paid into your super account by the tax office, provided your fund has your tax file number.

Although many people are unfamiliar with the LISTO, it is well worth taking the time and effort to understand how it works, as you are bound to know someone who benefits from it, typically people starting out in their careers and women with kids working part-time.

So how did the government come up with a rebate of $500 when the low-income tax offset was first introduced?

It’s basically equivalent to 15% (contributions tax) of 9% (SG) of $37,000, which is $499.50. It was closely aligned with PAYG thresholds. However, tax rates and the SG have changed since then, and unless the LISTO reflects these changes it will penalise the very people it’s meant to help.