Save
Tax benefits for voluntary super contributions made on behalf of spouse
The superannuation system is one of the most tax-effective ways to save money for retirement, however, smaller contributions due to lower income can affect the growth of a person’s nest egg.
Tax benefits for voluntary super contributions made on behalf of spouse
The superannuation system is one of the most tax-effective ways to save money for retirement, however, smaller contributions due to lower income can affect the growth of a person’s nest egg.
Fortunately, the Australian Taxation Office (ATO) allows couples to split their contributions and voluntarily contribute a portion to their spouse’s fund. In return, the contributing spouse can enjoy a spouse tax offset that lowers their tax payable for the financial year.
Here’s a quick guide on the tax benefits of contribution splitting.
What is contribution splitting?
Contribution splitting is a legal strategy that couples can employ to even out superannuation balances. This strategy allows one spouse to divide their own super contributions and transfer a portion to their spouse’s fund as long as they are within the age limit for super contributions.
However, there are two important rules to remember with regard to contribution splitting. These are:
- The couple, opposite or same-sex, must meet the definition of married or de facto spouses according to the Australian family law; and,
- This strategy may only be used for concessional or pre-tax contributions—the contributing spouse’s non-concessional contributions and super balance must be left untouched.
Spouses who wish to use this strategy would need to send in an application to the contributing spouse’s fund manager.
How the spouse tax offset works
The spouse tax offset allows the contributing spouse to offset up to $540 from their tax return when they make voluntary contributions from their account to their lower income spouse’s super.
The applicable tax offset is whichever is lesser between:
- 18 per cent of $3,000, which is equal to $540. This must be reduced by $1 for every $1 in excess of the $37,000 income threshold; and,
- 18 per cent of the contributing spouse’s contribution.
Beginning July 1, 2018, the income threshold for the receiving spouse increased to $37,000. This amount refers to the combined income from their salary, employer guarantee and fringe benefits.
The contribution limits depend on the type of super fund the contributing spouse has or the type of contributions made in the current financial year.
For accumulation funds, only concessional contributions, such as salary guarantee (SG) and pre-tax salary sacrifice contributions, may be used. There’s also a contribution limit of up to 85 per cent of whichever between the two amounts below is lower:
Any concessional contributions made by and through the contributing spouse’s employer or, for self-employed individuals, any personal contributions that the member will claim a tax deduction for; and the concessional contributions cap for the corresponding financial year.
For public-sector super schemes, members may transfer 100 per cent of their contributions if:
- It falls under untaxed splittable employer contributions; and,
- The amount falls below the concessional contributions cap.
Beginning July 1, 2018, the concessional contributions cap for all ages is $25,000.
Spouse contribution eligibility
Since there are two parties involved in this strategy, both spouses must be eligible to give or receive contributions.
To access the benefits of contribution splitting, both spouses should be Australian residents and meet the following eligibility criteria:
Contributing spouse
The contributing spouse may apply for the split at any age as long as the contributions were not deductible to them and the splitting wasn’t due to a family law obligation.
Receiving spouse
The receiving spouse is only eligible if they are below their preservation age or between their preservation age and 65 years old. They must not be retired.
The following also apply:
- Their total assessable income, including total employer contributions and fringe benefits, is less than $40,000;
- Their retirement savings is in a complying super fund;
- They have not exceeded their concessional contributions cap; and,
- Their super balance for the previous financial year is below the transfer balance cap of $1.6 million (as of July 2018).
If in doubt, it’s best to seek advice from the contributing spouse’s super fund manager.
This information has been sourced from the Australian Taxation Office and Nest Egg.
About the author
About the author
Tax saving
South Australians now eligible for COVID-19 Disaster Payment
South Australians under lockdown are set to be supported by the COVID-19 Disaster Payment, the state government has confirmed. ...Read more
Tax saving
Broken tax system costs economy $50bn
Australia’s tax laws are costing the nation about $50 billion in compliance costs, while inefficient taxes are slowing down economic growth, an industry expert has warned. ...Read more
Tax saving
Australia signs on for global trade floor
Australia is set to gain up to $3 billion in additional tax revenue after agreeing with world leaders to sign on to new rules as to where profits for multinationals should be taxed as well as a new mi...Read more
Tax saving
Aussies warned of overconfidence ahead of EOFY
Two-thirds of Australians are confident about grappling with the tax implications of the pandemic. Maybe too confident. ...Read more
Tax saving
Why investors could unknowingly be heading towards a CGT minefield
The calculation of a capital gain (or loss) should be simple. Unfortunately, it’s becoming more and more complicated, not because the information required to calculate the gain (or loss) has changed...Read more
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Tax saving
South Australians now eligible for COVID-19 Disaster Payment
South Australians under lockdown are set to be supported by the COVID-19 Disaster Payment, the state government has confirmed. ...Read more
Tax saving
Broken tax system costs economy $50bn
Australia’s tax laws are costing the nation about $50 billion in compliance costs, while inefficient taxes are slowing down economic growth, an industry expert has warned. ...Read more
Tax saving
Australia signs on for global trade floor
Australia is set to gain up to $3 billion in additional tax revenue after agreeing with world leaders to sign on to new rules as to where profits for multinationals should be taxed as well as a new mi...Read more
Tax saving
Aussies warned of overconfidence ahead of EOFY
Two-thirds of Australians are confident about grappling with the tax implications of the pandemic. Maybe too confident. ...Read more
Tax saving
Why investors could unknowingly be heading towards a CGT minefield
The calculation of a capital gain (or loss) should be simple. Unfortunately, it’s becoming more and more complicated, not because the information required to calculate the gain (or loss) has changed...Read more
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
