By Daniel Butler, Director, DBA Lawyers, and William Fettes, Senior Associate, DBA Lawyers
There are a few different ways that individuals can contribute money into superannuation for the benefit of their spouse. Taking advantage of these contribution options can help spouses achieve parity in relation to their respective super account balances over time and provide increased flexibility in relation to managing the transfer balance cap.
Broadly, the two main ways an individual can make super contributions for their spouse are:
- Spousal contributions: by making contributions to a superannuation fund on behalf of their spouse using after-tax money; or
- Contribution splitting: by arranging for contributions that have been made by or for themselves to be split and some part transferred into their spouse’s superannuation account.
The superannuation and tax consequences that arise in either case are discussed below.
Option 1 — Spousal contributions
Naturally, an after-tax non-concessional contribution can be made to a spouse’s superannuation fund by:
- an individual gifting money to their spouse outside the superannuation environment, allowing them to contribute the relevant amount themselves as a non-concessional contribution; or
- an individual making a non-concessional contribution directly to the spouse’s nominated superannuation fund on their behalf.
Where the spouse taking the benefit of the contribution (ie, the non-contributing spouse) has a low income, there is a tax incentive to make the contribution directly to the fund. More specifically, an individual may be entitled to a tax offset for superannuation contributions made for the benefit of a low income spouse. The offset, provided by sub-div 290D of the Income Tax Assessment Act 1997 (Cth), is available if all the following are satisfied:
- an individual makes contributions to a complying superannuation fund for the purpose of providing superannuation for the spouse;
- both the individual and the spouse are Australian residents when the contributions are made;
- the sum of the spouse’s assessable income, reportable fringe benefits total and reportable employer superannuation contribution for the year is less than $40,000; and
- the contribution is not deductible under s 290-60 of the ITAA 1997 as an employer contribution (ie, where an employer makes a contribution for their employee).
An individual is not entitled to a tax offset where:
- the individual and the non-contributing spouse are living separately and apart on a permanent basis at the time the contribution is made;
- the non-contributing spouse has exceeded their non-concessional contribution cap for the financial year in which the contribution is made; or
- the non-contributing spouse has a total superannuation balance greater than the general transfer balance cap (ie, $1.6 million for the 2017-18 income year) immediately before the financial year in which the contribution is made.
Amount of the tax offset
The tax offset an individual is entitled to for making a spousal contribution is equal to 18% of the lesser of:
- $3,000 reduced by $1 for every $1 that the total of the spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $37,000 (s 290-235 of the ITAA 1997), and
- The total of the spouse contributions.
Accordingly, a maximum tax offset of $540 ($3,000 x 18%) applies if the non-contributing spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions is $37,000 or less, and the tax offset is progressive reduced until it reaches zero for spouses with income above $40,000.
Note that $540 is the applicable maximum offset even where an individual has more than one spouse (s 290-235 of the ITAA 1997).
Prior to 1 July 2017, the above income thresholds were significantly lower ($10,800 for the lower threshold and $13,800 for the upper threshold) which limited eligibility for the offset.
Option 2 — Contributions Split
The other main avenue for an individual to make super contributions in favour of their spouse involves splitting a member’s concessional (before-tax) contributions to add to the spouse’s account.
The superannuation contribution splitting rules allow a member to apply to their fund trustee to roll-over or allocate an amount of their contributions to their spouse’s account (reg 6.44 of the Superannuation Industry (Supervision) Regulations 1994 (Cth)). The rules preclude a non-concessional contributions from being split with a spouse.
Broadly, a member of a superannuation fund may apply for such a contribution split to occur in respect of concessional contributions made to a fund by or in respect of a member in a prior financial year. Generally, for large industry and retail funds, a member can only request a contributions split from 1 July for contributions made in the previous year up to 30 June.
The maximum amount that can be split for a year is 85% of the applicable contributions, subject to the concessional contributions cap (currently $25,000 per annum).
A member’s request will be invalid if, at the time of the contribution, the member’s spouse is aged at least 65 years or has reached preservation age and has retired from the workforce. Further, a member cannot split existing superannuation benefits, contributions made before 1 January 2006 or amounts rolled over or transferred from another fund.
Contributions splitting does not reduce the amount counted towards the member’s personal concessional contributions cap. Thus, for example, if Chris and Taylor were spouses and Chris decides to split 50% of his concessional contributions (let’s say $20,000) with his spouse, Taylor, and the fund’s trustee accepts, Chris would have used $20,000 of his concessional contributions cap and Taylor would have used none. Both Chris and Taylor would have $10,000 added to their member balances in the fund (totalling $20,000).
If the contributing member wishes to claim a deduction for their personal contributions and split all or part of these contributions with their spouse, the member must provide the fund trustee with a notice of intent to claim a deduction under s 290‑170 of the ITAA 1997 before, or at the same time as, the lodgement of their contributions splitting application.
For SMSFs, a request to do a contributions split must be allowed under the fund’s trust deed.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.