Another Bill was tabled in Parliament last week, and if passed, will give low income earners the ability to be "refunded" the equivalent of their Superannuation Contribution Tax of 15%. The Bill seeks to insert some additional provisions into the Superannuation (Government Co-Contribution For Low Income Earners) Act 2003. If it is passed, this will hopefully become law from 1 July 2012.
So how does it work? Well, as you may be aware, all superannuation contributions made before tax (concessional contributions) ie. when paid to your super fund by your employer, are taxed on entering the fund at 15%. The problem is that if you earned less that $37,000 per annum you effectively have little or no tax incentive to contribute to super. The tax you pay going into super is equal to, if not higher than what you would pay if you received it in your hand.
So it is fantastic news to see the treasurer recognise this imbalance and if passed, we will hopefully see low income earners realising the benefits of contributing additional funds towards their retirement. The Bill proposes a payment from the Government into the super Fund or Retirement Savings account of a low income earner on certain grounds. How it will work is as follows:
- Firstly you will have to complete an Income Tax return - which in the past you may not have had to have done.
- You will have to calculate your Adjusted Taxable Income and if this is less than $37,000 you may qualify for the Government payment.
- A maximum annual amount would be payable to each eligible individual of $500
For example and individual who earned less than $37,000 and whose employer contributed $3000 as concessional contributions into super, would have paid contributions tax of $450. They would get a Government payment (refund) of $450 into their fund effectively removing their super contributions tax. If the same individual had contributed $3500 into super, they would have paid contributions tax of $525 and would get a Government payment of 15% x $3500 limited to $500. In other words will get paid $500 into their super fund.
This is great news, and remember you may also qualify for the government co-contribution if you make non-concessional contributions into super as well, so make the most of the rules and get what you deserve.
