There are a few different ways 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:
1. Spousal contributions: by making contributions to a superannuation fund on behalf of their spouse using after-tax money.
2. 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 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 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 $37,000, and
• the contribution is not deductible as an employer contribution.
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 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 per cent of the lesser of:
• $3000 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, and
• the total of the spouse contributions.
Accordingly, a maximum tax offset of $540 applies if the non-contributing spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions amount to $37,000 or less, and the tax offset is progressively reduced until it reaches zero for spouses with income above $40,000.
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. The rules preclude a non-concessional contribution 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.
The maximum amount that can be split for a year is 85 per cent of the applicable contributions, subject to the concessional contributions cap.
A member’s request will be invalid if, at the time of the contribution, the member’s spouse is aged 65 or over or has reached preservation age and has retired from the workforce. Contributions splitting does not reduce the amount counted towards the member’s personal concessional contributions cap.
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 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.
