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

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.

Retirement

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.

Sponsors

Alliances

© 2021 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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.