Tax refund to your super – Are you eligible?
Sometimes superannuation can be confusing, especially when it comes to the tax part of the superannuation system. Not only it has its own tax rules internally, but also can impact positively or negatively if you are not careful on your outside of super, personal tax liability.
No wonder that I constantly receive questions about impact of certain super contributions on our personal income tax bill. At the end of the day, we all want to reduce our tax bill, if possible, but you should really pay attention to it, especially when on a low income, as in this situation every dollar of your savings in super counts, and every dollar of your tax bill saved counts, as it will give your more net income in your pocket.
So today, I will explain a pretty unknown and a bit confusing LISTO. I will explain:
- What is LISTO?
- Who is eligible for LISTO and who can benefit the most.
- How LISTO works.
- As usual I will give you couple of examples how LISTO works in real life.
What is LISTO?
LISTO is the Low-Income Super Tax Offset. It is a rebate that is paid to your superannuation fund, so not to you like a Low-Income Tax offset, but to your superannuation fund, as a refund for the tax paid by the super fund, so your 15% contribution tax.
LISTO can be as high as $500 a year refund to your super fund, calculated as 15% of your eligible contributions. LISTO has been designed for low-income earners, to ensure that by contributing to super they are not worse off, then if that amount was received as an income.
Who can be eligible for LISTO?
Whether you are eligible or not depends on your personal taxable income for the year. As the name suggest, this rebate is designed for the Low-Income earners to reduce the impact the 15% contribution tax has on the balance of the money going into the fund.
To be eligible you need to meet all those conditions:
- You or your employer pay concessional contributions, so contributions made with pre-tax money. This includes SG contributions.
- You earn less than $37,000 a year,
- You have not held a temporary resident visa during the year (that excludes New Zealand citizens in Australia, who are eligible for LISTO) and
- 10% of your income comes form business or employment.
If you are unsure what concessional contributions are, please see: Concessional Contributions to super – what is SG? and Concessional contribution to super – Salary Sacrifice.
How does LISTO work?
Once you complete your annual tax return and your super fund had provided all the information about your annual contributions to the Tax Office, the ATO will marry the two sources of information, and if you fit into the requirements, ATO will automatically pay the refund back to your super fund. The whole system is automated. You don’t need to apply for LISTO. If you are eligible and if you provided you super fund with your TFN, the refund will be done automatically, just as it is the case with the super co-contribution, but unlike co-contribution, there is no age limit on eligibility.
Therefore, as a general rule, if your income is $37,000 or less:
Examples how you could benefit:
Mary is working part-time as a shop assistant and her taxable gross income for the year is $36,000. Employer is contributing SG of $5,400 that is subject to 15% contribution tax of $810. Mary is not contributing any extra to her super.
So now in order to find out if Mary is eligible for the LISTO, the ATO will follow the following questions, and you have to get four YESs.
Tom is 66 self-employed only working few extra hours a week to save his super withdrawals and earn extra pocket money. His annual earned income is $32,000, but he decided to pay extra to super $3,200 as concessional contributions.
As you can see the refund will equal to the tax paid if it is below $500, or the maximum of $500, if your concessional tax is greater than $500.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
