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Contributing super for your spouse

Have you considered contributing for a spouse to even up your superannuation balances? It may maximise combined super balances without running into the $1.6 million super cap trap introduced on 1 July 2017. Getting even can pay dividends for your super!

An illustration

Consider Sam, 66, who reduced his account-based pension balance to $1.6 million on 1 July 2017 and transferred $450,000 into accumulation phase. His wife Isabella, 62, has $420,000 in super, which is a lot less than Sam’s balance due to her family responsibilities creating interrupted work patterns.

Sam is unable to make non-concessional contributions (NCCs) to super as he exceeds the $1.6 million total superannuation balance. Besides, the income earned on the amount he transferred to accumulation phase is taxed at 15%, so it may be better for Isabella to top up her super balance to even it up with Sam. There are a number of strategies that could be used.

Sam could make a spouse contribution for Isabella to increase her superannuation balance. If Isabella earned less than $37,000 (adjusted income), any NCCs made by Sam on her behalf would qualify for a low-income-spouse tax offset of up to $540 for the first $3,000 of the NCCs he makes for her.

Eligibility for spouse super contributions

To be eligible to make spouse contributions for Isabella:

  • Sam and Isabella must be Australian residents at the time the NCCs are made for the spouse
  • The spouse contributions must not be made as part of a family law obligation to split contributions with Isabella
  • The contributions must be made to a complying superannuation fund on behalf of Isabella
  • Sam and Isabella must not be living separately or apart on a permanent basis when the NCCs are made
  • Isabella must be under age 65 (or if she was between age 65 and 69, then she must have met the work test of at least 40 hours in 30 consecutive days)
  • Sam should not have claimed a tax deduction for the contributions made for Isabella
  • Isabella’s income must be less than $37,000 for Sam to be eligible for the tax offset. The maximum tax offset of $540 deceases if Isabella’s adjusted income is above $37,000 and phases out to $0 once her adjusted income reaches $40,000
  • Isabella’s total superannuation balance must be below $1.6 million on 30 June in the year prior to the spouse contribution being made, and
  • Isabella must not have not exceeded her NCC cap for the financial year.

Tax offsets

Let’s assume Sam and Isabella meet all eligibility requirements to be eligible for the low-income-spouse tax offset and Isabella’s adjusted income is $20,500 for the current financial year. Sam decides to make a $5,000 contribution on behalf of Isabella in June 2018. He would be entitled to the full tax offset of $540 in his 2018 income tax return. This is calculated as 18% of the first $3,000 of the NCC he made for Isabella, as her adjusted income is below the $37,000 threshold and she meets all the other requirements for Sam to be eligible for the tax offset.

The spouse contribution forms part of Isabella’s NCCs and the maximum that Sam could contribute is up to Isabella’s NCC cap. As Isabella is under age 65 and has a total super balance of less than $1.6 million, her NCC cap is $300,000 under the bring forward provisions. Sam could potentially contribute up to this amount for Isabella, however, would only be entitled to a maximum tax offset of $540 in doing so.

Benefits of even super balances for a couple

There are many ways someone under age 65 can contribute to superannuation, either directly or indirectly. Isabella’s superannuation benefits could be boosted by her making NCCs which could qualify for the co-contribution of up to $500, Sam could split his concessional contributions with Isabella and she may wish to make concessional contributions in the right conditions.

 

Graeme Colley is the Executive Manager, SMSF Technical and Private Wealth and Emma Partenza is an SMSF Technical Specialist at SuperConcepts. This article is general information and does not consider any individual’s investment objectives.

SuperConcepts is a sponsor of Cuffelinks. For more articles and papers from SuperConcepts, please click here.

 


 

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