Have you considered contributing for a spouse to even up your superannuation balances? There may be benefits for you to even them up to maximise super without running into the $1.6M super cap trap introduced on 1 July 2017. Getting even can pay dividends for your super!
Consider Sam, 66, who reduced his account-based pension balance to $1,600,000 on 1 July 2017 and transferred $450,000 into accumulation phase. His wife Isabella, 62, is a stay at home parent raising their 5 children and has $420,000 in super, which is a lot less than Sam. Often one parent has had interrupted work patterns meaning a significant difference in the couple’s superannuation balances.
Sam is unable to make non-concessional contributions (NCCs) to super as he exceeds the $1.6M total superannuation balance. Besides, the income earned on the amount he transferred to accumulation phase is taxed at 15%, so it may be better for Isabella to top up her super balance to even it up with Sam. There are a number of strategies that could be used.
Sam could make a spouse contribution for Isabella to increase her superannuation balance. If Isabella earned less than $37,000 adjusted income, any NCCs made by Sam on her behalf would qualify for a low-income spouse tax offset of up to $540 for the first $3,000 of the NCCs he makes for her.
To be eligible to make spouse contributions for Isabella:
- Sam and Isabella must be Australian residents at the time the NCCs are made for the spouse;
- The spouse contributions must not be made as part of a family law obligation to split contributions with Isabella;
- The contributions must be made to a complying superannuation fund on behalf of Isabella;
- Sam and Isabella must not be living separately or apart on a permanent basis when the non-concessional contributions are made;
- Isabella must be under age 65 (or if she was between age 65 and 69, then she must have met the work test of at least 40 hours in 30 consecutive days);
- Sam would not have claimed a tax deduction for the contributions made for Isabella;
- Isabella’s income must be less than $37,000 for Sam to be eligible for the tax offset. The maximum tax offset of $540 deceases if Isabella’s adjusted income is above $37,000 and phases out to $0 once her adjusted income reaches $40,000;
- Isabella’s total superannuation balance must be below $1.6M on 30 June in the year prior to the spouse contribution being made; and
- Isabella must not have not exceeded her NCC cap for the financial year.
Let’s assume Sam and Isabella meet all eligibility requirements to be eligible for the low-income spouse tax offset and Isabella’s adjusted income is $20,500 for the current financial year. Sam decides to make a $5,000 contribution on behalf of Isabella in June 2018. He would be entitled to the full tax offset of $540 in his 2018 income tax return. This is calculated as 18% of the first $3,000 of the NCC he made for Isabella, as her adjusted income is below the $37,000 threshold and she meets all the other requirements for Sam to be eligible for the tax offset.
The spouse contribution forms part of Isabella’s NCCs and the maximum that Sam could contribute is up to Isabella’s NCC cap. As Isabella is under age 65 and has a total super balance of less than $1.6M, her NCC cap is $300,000 under the bring forward provisions. Sam could potentially contribute up to this amount for Isabella, however, would only be entitled to a maximum tax offset of $540 in doing so.
There are many ways in which someone under age 65 can contribute to superannuation, either directly or indirectly. Isabella’s superannuation benefits could be boosted by her making NCCs which could qualify for the co-contribution of up to $500, Sam could split his concessional contributions with Isabella and she may wish to make concessional contributions in the right conditions.
There are many ways in which a superannuation balance can be boosted depending on your spouse’s circumstances and tax position. The use of spouse contributions and other super concessions can provide a great opportunity to increase the combined amount a couple can receive in retirement.
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