The strategy To take advantage of the new low-income super contributions.
How do I do that? Here's the good news: you don't have to do a thing. The rule, which came into effect on July 1, applies automatically so if you're eligible, all your future concessional super contributions (the ones made by your employer, through salary-sacrifice arrangements, or where you can claim a tax deduction) will in effect be made tax-free. This measure was introduced to make super fairer because under the old rules you would have paid more tax on contributions than if you had taken the money as salary.
How does it work? Individuals who earn less than $37,000 will receive up to $500, paid directly into their super fund. This amount will offset the usual 15 per cent tax that applies on concessional super contributions.
To be eligible, you must earn less than $37,000 of adjusted taxable income. This is basically what you earn plus super contributions made by your employer, any personal deductible super contributions you made, your adjusted fringe benefits, certain tax-free government pensions or benefits, foreign income not included in your taxable income, net investment losses and rental property losses, and any child-support payments you provided to another person.
You also must have received concessional contributions in your super fund and earned 10 per cent or more of your total income from business and employment.
Having jumped through those hoops, the government will make an extra contribution to your super fund of 15 per cent of your concessional contributions, up to a maximum of $500. So if, for example, you received $3000 in super from your employer, the government will chip in another $450. The minimum contribution will be $20.
How will the government know whether I'm eligible? The information will be taken from your tax return and your super fund's contribution records, so there will be a delay. According to the Tax Office, the government's contribution for the 2012-13 financial year won't be made until the 2013-14 year. If you don't have to fill in a tax return, you will still get the payment.
The Tax Office says it will work out your eligibility from your fund's contribution statements and other information it collects, though this could take up to 14 months to complete.
You do, however, need to make sure your fund has your tax file number because the Tax Office will need this to process the payments.
It says you can apply to have the contribution paid directly if you have reached preservation age (55) and retired, or if you have turned 65.
Does this mean I now get the same tax benefits from super as higher-income earners? No, it just means you're no longer paying the 15 per cent tax on concessional super contributions, so every $1 deposited into your fund can be put to work for you. Higher earners still pay the 15 per cent contributions tax, but because they pay more than this on their income, there's an incentive for them to contribute to super.
The director of StrategySteps, Louise Biti, says if lower earners don't need all their income (presumably because their spouse is a higher earner), they can consider salary sacrificing into super.
While the immediate tax benefit might not be significant (under the new tax scales, you pay no tax on the first $18,200 you earn and 19 per cent on any excess up to $37,000), at least you're no longer being penalised for contributing. And your money is now invested in a low-tax environment where it can grow for your retirement.