An “out-of-date” superannuation rule could cost Australia’s low-income workers $500 million in savings this year, according to a superannuants’ advocacy group.The Super Members Council (SMC) has called for a lift of the Low-Income Superannuation Tax Offset (LISTO), a rebate introduced to help low-income earners boost their nest egg. The rebate has been frozen for 13 years causing millions of workers to miss out on savings, according to the analysis.Designed to make Australia’s tax system fairer, the LISTO gives low-income earners a tax refund for their superannuation contributions.
But in 2020, tax brackets changed while the offset remained the same, leaving thousands of low-income earners out of its scope.
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Calls for change to Low Income Super Tax Offset rule
It means some 1.2 million low-income workers will miss out on a collective $500 million dollars this financial year, with women and young people more likely to be affected, according to the report. It also found the problem is set to become more “acute” when stage three tax cuts come into effect in 2027.
What is the Low-Income Superannuation Tax Offset?
Superannuation is taxed for most Australians at a flat rate of 15 per cent. The LISTO is a fairness measure implemented to ensure low-income earners don’t end up paying more tax on their superannuation than on their take-home pay.The LISTO offers refunds up to $500 that are directly deposited into superannuation accounts by the Australian Taxation Office.When the LISTO was introduced in 2012 it applied for those earning up to $37,000, covering the two lowest-earning brackets.
But the LISTO is not indexed, and has remained the same for 13 years, in spite of inflation and changes made to Australia’s income brackets.
In July 2020 the second income bracket was raised from $37,000 to $45,000, rendering roughly 500,000 low-income earners ineligible for the LISTO. Analysis from the SMC report estimated this cohort has lost a collective $3 billion in rebates.In its report, the SMC has said millions of Australians were no longer receiving the tax benefit they deserved, a situation anticipated to worsen amid further changes to income brackets in 2027.
The SMC’s modelling suggests that, if the LISTO remains frozen, one in four people will pay a higher tax rate on their superannuation contributions than on their income.
Who else is affected?
People working in low-paid, frontline professions are most vulnerable to missing out on benefits from the LISTO, with women and young people most at risk, according to the report. The occupations where workers were anticipated to be most-affected included carers and aides, followed by salespeople and health professionals.Super Members Council acting CEO Georgia Brumby said it was “time to fix” the system.”One part of our super system has been frozen for 13 years, and more than a million low-paid workers, the majority of which are women, are being shortchanged by up to $60,000 in retirement savings. It’s time to fix it,” she said.
“Australians put aside a portion of their money for their future – in exchange the government gives them a tax benefit. We must keep that promise by ensuring the system is fair and continues to deliver for all Australians,” she said.
The SMC has called for eligibility for the LISTO to be bumped up to $45,000, ensuring earners in the lowest-two income brackets receive a benefit for their superannuation contributions.The council also recommended the LISTO payment be increased from $500 to $810, echoing calls from the Grattan Institute and Women in Super.
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