Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 262

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.

 


 

Leave a Comment:

RELATED ARTICLES

How the super contribution changes may benefit you

New super doors opening from 1 July 2017

banner

Most viewed in recent weeks

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Latest Updates

Property

Financial pathways to buying a home require planning

In the six months of my battle with brain cancer, one part of financial markets has fascinated me, and it’s probably not what you think. What's led the pages of my reading is real estate, especially residential.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

Economy

Household spending falls as higher costs bite

Shoppers are cutting back spending at supermarkets, gyms, and bakeries to cope with soaring insurance and education costs as household spending continues to slump. Renters especially are feeling the pinch.

Shares

Who gets the gold stars this bank reporting season?

The recent bank reporting season saw all the major banks report solid results, large share buybacks, and very low bad debts. Here's a look at the main themes from the results, and the winners and losers.

Shares

Small caps v large caps: Don’t be penny wise but pound foolish

What is the catalyst for smalls caps to start outperforming their larger counterparts? Cheap relative valuation is bullish though it isn't a catalyst, so what else could drive a long-awaited turnaround?

Financial planning

Estate planning made simple, Part II

'Putting your affairs in order' is a term that is commonly used when people are approaching the end of their life. It is not as easy as it sounds, though it should not overwhelming, or consume all of your spare time.

Financial planning

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.