If your spouse—husband, wife, de facto, same-sex partner—is a low income earner or not working at the moment, chances are they’re accumulating little or no super at all to fund their retirement.
The good news is, if you help by contributing some of your own money to their super, you could be eligible to receive a tax rebate.
And, if government proposals from the 2016 Federal Budget are legislated, this tax advantage could be accessible to even more people from mid next year.1
What are the tax benefits of spouse contributions?
Currently, if your partner has no source of income or is a low income earner, you can make after-tax contributions to their super fund and claim an 18% tax offset on up to $3,000.2
To be eligible for the maximum tax rebate of $540, your partner’s annual income needs to be $10,800 or less and you need to contribute at least $3,000. If their annual income exceeds $13,8003 you can still make a spouse contribution on their behalf but you won’t be eligible for the tax offset.
What you contribute will also count towards your partner’s non-concessional contributions cap, which is the maximum amount that can be contributed to super after tax. Currently this cap is $180,000 per year.4
Meanwhile, the government is proposing to increase access to the spouse contributions tax offset from 1 July 2017 by raising the lower income threshold from $10,800 ($13,800 cut off) to $37,000 ($40,000 cut off).5
How do I know if I’m eligible for the spouse contributions tax offset?
To be entitled to the spouse contributions tax offset6:
- You need to make an after-tax contribution to your spouse’s super account
- You must be married or in a de facto relationship. This includes same-sex couples, however if you are a married couple that isn’t living together you aren’t eligible
- You must both be Australian residents
- In the 2015/16 and 2016/17 financial years, the receiving spouse’s income must be $10,800 or less to receive the full tax offset and less than $13,800 to receive a partial tax offset
- The receiving spouse has to be under the age of 65, or if they are between 65 and 69 they must meet work test requirements.
Are there any other ways I can help build my partner's super?
Another way you can contribute to your partner’s super is by splitting up to 85% of your before-tax contributions, such as employer and or salary sacrifice contributions, as well as personal tax deductible contributions, which you received in the previous financial year.
To be eligible for before-tax ‘contributions splitting’, your partner must be under 65 and still working.7
Amounts that you split between your and your partner’s super will also be counted against your concessional contributions cap, which is the maximum amount of money that can be contributed annually to super before tax. Currently this cap is $30,000 or $35,000 for people over the age of 49.8
What is the government proposing to change?
Aside from the government’s proposal to increase the number of people eligible for the spouse contributions tax offset from 1 July 2017, it has also proposed changes to non-concessional and concessional contributions caps, and pointed to the removal of the work test for some people.
You can read more about this in our Federal Budget 2016-17 roundup, but remember proposals are not set in stone and could change as legislation passes through parliament.
Your circumstances and retirement goals will play a big part in what strategy you opt for and as the rules around spouse contributions and contributions splitting can be complex you may want to talk to an adviser to ensure the approach you and your partner take is the right one.
Where can I go for more information?
1, 4, 5 https://www.amp.com.au/news/2016/may/federal-budget-2016
2, 3, 6 https://www.ato.gov.au/Individuals/Tax-return/2015/Supplementary-tax-return/Tax-offset-questions-T3-T9/T3-Superannuation-contributions-on-behalf-of-your-spouse/
7, 8 https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/SPR19312n15237.pdf