Newsletter No. 6, June 2013

Boost your superannuation savings

As the 2012/2013 financial year is about to come to an end, I thought it would be good to alert you to a couple of government schemes that can help you boost your superannuation savings.  The two schemes are: the Superannuation Co-contribution and the Low Income Super Contribution. These government schemes entitle you to get free government money for your super if you satisfy certain conditions. You must act quickly, however, as the cut-off dates for applications is Friday 28 June 2013.

The Superannuation Co-contribution (SCC) was first introduced in the 2003/2004 financial year. Back then for each $1 you deposited  into your superannuation account, the government would contribute $1.50.  The government would contribute $1.50 only up to a maximum of the first $1,000 personal contribution. This meant if you deposited $1,000 or more into your SMSF the government would deposit $1,500 as long as your income was below $27,500 (i.e. the lower SCC threshold for 2003/04).

This $1.50 for every $1 was increased to $3 for one year in 2006 as a special bonus.  Then it was reduced to dollar for dollar in 2010.  Currently, there is legislation before parliament to reduce the government contribution down to 50 cents for every $1 personally contributed.  Now, regardless of the government contribution being reduced, SCC is still worth taking advantage of if you can.  It’s not often that the government gives us money for nothing! If you want to take advantage of it, the conditions that you must satisfy are:

  • you made a non-concessional contribution into your SMSF
  • your SMSF is a complying superannuation fund
  • you received at least 10% of your income from employment or from carrying on a business
  • you lodged your personal income tax return
  • you are less than 71 years of age
  • you do not hold an eligible temporary resident visa
  • your income is less than the higher SCC threshold of $46,920 (if the new proposal becomes law) or $61,920 (if the new proposal does not become law)

The way SCC is calculated is:

  • if your income is equal to or below $31,920 (the lower SCC threshold) then you will be entitled to the full 50 cents for every $1 (under the proposed law) or $1 for every $1 (under the old law)
  • if your income is equal to or higher than $46,920 (under the proposed law) or $61,920 (under the old law) then you will not be entitled to any SCC
  • the maximum amount that the government will contribute is $500 (under the proposed law) or $1,000 (under the old law)
  • if your income is between the lower SCC threshold and the higher SCC threshold then the government contribution is reduced by 3.33 cents for every dollar your income is above the lower SCC threshold

There is no tax payable by your SMSF on the amount you have contributed and the SCC deposited by the Government into your SMSF.  The SCC is also not included as income in your personal tax return. Click on the link to read more on Super co-contribution.

If you earned less than $37,000 per year you may be eligible for the Low Income Super Contribution (LISC) on your concessional contributions.  A concessional contribution is a contribution you deposited into your SMSF and claimed a tax deduction, an employer’s superannuation guarantee contribution, or your salary sacrificed superannuation contribution paid into your SMSF. What the government will do is return the 15% contributions tax paid by your SMSF of up to $500 a year.  For example, if you deposit a $4,000 concessional contribution into your SMSF, normally your SMSF would need to pay $600 tax (i.e. $4,000 x 15% contribution tax = $600 tax payable).  In this example, the Government will return $500 back into your SMSF.

To be eligible for LISC, you need to satisfy the following conditions:

  • you made concessional contributions into your SMSF
  • your SMSF is a complying fund
  • you received at least 10% of your income from employment or from carrying on a business
  • you do not hold an eligible temporary resident visa
  • your adjusted taxable income does not exceed $37,000
  • the amount of LISC calculated is $20 or more

The Government has stated that it will amend the eligibility for the LISC to now pay individuals with an entitlement below $20.  Under the current law LISC is not paid if it would be less than $20.

LISC only commenced from 1 July 2012 so this is the first financial year that it is payable.  For LISC it doesn’t matter whether you have lodged your income tax return or not (for example, you are under the tax free threshold) as the Tax Office will work out your entitlement using other information received.  LISC is paid into your SMSF, however, you can apply for LISC to be paid directly to you if you have reached your preservation age and are retired or you are 65 years old or over.  The direct payment form is available from the ATO.   LISC is treated as a tax free component of any superannuation benefit.

Click on the link to read more on Low Income Super Contribution.

If you act quickly before 28 June 2013, you may be entitled to both.  The SCC on your non-concessional contribution and the LISC on your concessional contribution. As I’ve said before, how often do you get money for doing next to nothing?

Disclaimer

Monica Rule is the author of “The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English”.  Her advice is general in nature and readers should seek their own professional advice before making any financial decisions.