Government Refunding of Contributions Tax

The Government previously announced that the impact of tax on superannuation contributions for low income super members was to be ameliorated.

The Government has recently reaffirmed this proposal and released a consultation paper as to the proposal’s implementation.

In broad details the proposal is that from the 2011/12 financial year, the Government will effectively refund the contributions tax imposed on SG contributions made for low income super members.

Contributions tax will still be imposed on SG contributions for low income super members. However, by the low income super member submitting their tax return, the Government will determine the amount of contributions tax imposed on their contributions,and by making a contribution to a super fund for the member, effectively refund the previously imposed contributions tax.

The proposal will only apply to super members who lodge an income tax return and whose “adjusted taxable income” is less than $37,000. The maximum refund will be $500. The refund will be paid by the Government as an additional superannuation contribution for the member. Other eligibility conditions for the refund may also be imposed.

Example

John worked part time and earned $35,000 for the 2011/12 financial year. His employer maded SG contributions at the rate of 9% for him. Consequently $3,150 was contributed by John’s employer to his super fund.

The super fund would have deducted $472.50 from those contributions on account of the fund’s (prospective) tax liability in respect of those contributions.

When John submits his tax return, the Government will determine that John had an income less than the $37,000 cut off point and the Government will pay $472.50 as an additional super contribution for John.

Comments

This proposal is another example of “$1 over and your out” design of so much of super. Having an income of $36,999 will give rise to a refund of $499. However having an income of $37,001 means there is no refund at all.
What constitutes income for the purposes of the refund is yet to be determined. The consultation paper uses the term “adjusted taxable income” to measure the entitlement to the refund. Presumably this means taxable income plus reportable fringe benefits plus reportable employer contributions.
The refund is not a cash refund to the member but a payment to a super fund for the benefit of the member. Presumably the payment will be a non-concessional contribution which is not subject to the contributions cap.
The proposal is that the $37,000 cut off point is not indexed. If and when the SG rate increases beyond the current 9% , it is uncertain whether the maximum refund will be increased beyond the proposed $500. (The $500 limit applies because it is 15% of 9% of $37,000.)