Spouse Contribution Splitting

This type of super contribution is one way for couples to work effectively to maximize their future super returns. First I guess we should delineate exactly what the ATO (Australian Tax Office) defines as a spouse.

A spouse can be either:

Your legally married partner that you live with or,

Your de facto partner, i.e. a partner that you live with, but are not legally married to. Same sex partners are now included in this category by the ATO.

Now there’s also an age criteria to be met before you think about doing this. Your spouse needs to be less than 65 years of age or between 65 and 69 but pass a “work test” requirement.

Ok, are you still in the running? Let’s proceed.

So if for any reason your partner is not receiving superannuation entitlements from an employer you can use either spouse contributions or contribution splitting, or both strategies, to keep their super account and your financial security as a couple moving forward.

Which path/paths you go down depends very much on your combined income, your personal circumstances and how you see your retirement.

It would be best to speak with a trained Rate Detective consultant to ascertain where you sit on these fronts before deciding.

In broad terms how Spouse Contributions work is that under the current tax laws you can receive an 18% tax offset on contributions up to $3000 you make to your spouse’s super account.

For example say your spouse earns $10,800 or less in taxable income, you can then get the maximum tax offset of $540, provided you have made a minimum contribution of at least $3000.

The amount of tax offset you receive is then progressively reduced until it becomes zero as your spouse earns $13,800 or more in any given tax year.

You can of course make contributions above this, but you only get the offset up to the $3000 point.

With Contribution Splitting you can choose, at the end of the financial year, to have some of either your employer contributions, or after tax income of your own, redirected into your spouse’s super. But be aware that some super funds to charge a fee to carry this out.

Let’s look at a few examples of how these sorts of contributions and the associated tax offset’s might work.

  • Sean has a salary of $75,000 per year (before deductions, including tax).
  • Sean would like to make a contribution into his spouse’s superannuation account to help boost her super balance and to benefit from the spouse contribution tax offset.

Sean’s current situation

Gross salary income $75,000
- Income tax $17,422
Net disposable income $57,578

If Sean had a non-working spouse

If Greg contributed $3,000 after tax into his non-working spouse’s super account, he would be eligible to receive a $540 tax offset.

Here’s how it would look based on Feb 2015 tax and Medicare rates:

Gross salary income $75,000
- Income tax $17,422
+ Tax offset $540
Net disposable income $58,118
- (After-tax) spouse contribution $3,000
Net income after spouse contribution $55,118

If Sean’s spouse had an assessable income of $12,000

If Sean contributed $3,000 after-tax into his spouse’s super account, and she earned an assessable income of $12,000, he would be eligible to receive a $324 tax offset.

Here’s how it would look:

Gross salary income $75,000
- Income tax $17,422
+ Tax offset $324
Net disposable income $57,902
- (After-tax) spouse contribution $3,000
Net income after spouse contribution $54,902

So as you can see there are some definite advantages to this strategy. As mentioned previously all our Rate Detective consultants are across this territory and are more than happy to have an informal chat with you at your convenience.

Published on June 6-th, 2015 in Superannuation
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.