There are 2 very unrelated Superannuation Strategies around Superannuation and your spouse.
- SPOUSE CONTRIBUTIONS REBATE
- SUPER SPLITTING (TO YOUR SPOUSE)
1. Spouse Contribution Rates
Focus – of this strategy is on reducing tax for the higher-earning spouse.
In recent years the rules changed making this strategy more viable for more couples. In the scenario where you have a significant differential in taxable incomes, the spouse on the higher income may qualify to receive a benefit from a personal contribution to the lower-income spouse.
If the lower spouse’s income is under $37,000 (for along time previously this threshold was only $10,800), you can make a contribution of up to $3,000 and claim up to a maximum 18% rebate ($540 maximum) on your tax. This phases out to nil once the receiving spouse’s income is above $40,000 (previously $13,800).
Spouse 1 Has an income of $80,000
Spouse 2 Has an income of $ 30,000
By making a “Spouse Contribution” to Spouse 2 of $3,000, Spouse 1 can claim a tax rebate of $540 contribution on their tax return.
- In assessing Spousal income, you must also include any reportable Fringe Benefits or additional contributions (or salary sacrifice) mandated above Super Guarantee (SG) levels.
- Spouse contributions are considered as a “non concessional” contribution and as such counts towards the annual CAP of $100,000 for personal “Non-concessional contributions”.
- This is a useful strategy if you have already maximised your own $25,000 Concessional Contribution.
2. Super Splitting – To Your Spouse
Focus – of this strategy is on transferring some of your super balance from one spouse to another.
Super splitting is the process of rolling over your previous year’s “Concessional” contributions (less the 15% tax) to your spouse. Once 30 June arrives, the window for rolling over last years’ contributions to your spouse will close.
Spouse 1 – Contributed the maximum $25,000 in concessional Contributions In the 2018/19 year.
Anytime before 30 June 2020, Spouse 1 can transfer $21,250 ($25,000 less the 15% contributions tax of$3,750) to Spouse 2.
Reasons why you would consider Super Splitting :
- A useful strategy in leveling out super balances between spouses as a natural hedge against legislative risk (eg an unexpected future tax on high pension incomes).
- Keeping under certain thresholds to benefit from other Super Strategies.
- EG – If your balance is under $500,000 you can now bring forward unused Concessional contributions from the 2018/19 year onwards.
- EG – If your balance is under $300,000 and you are aged between 65 & 74 you may be exempt from the Work Test Exemption for the very next year after your last year of work providing an extra year of contribution capacity when you start retirement. This can be very useful if you plan on selling some investment assets in a low-income year to boost super balances.
- In both of the above examples, Super Splitting can be used to keep one Spouse from rising above the identified threshold and therefore qualify for these strategies.
- Spousal Age Gap:
- Either Shelter assets to a younger spouse (to enhance Centrelink benefits), or
- To increase the accessibility of super by splitting super to an older spouse – closer to preservation age/retirement.
- Similarly, super splitting to an older spouse may allow you to get the assets into the tax-free arena of Allocated Pensions (no tax on earnings of the asset base).
- The receiving Spouse must be Under Age 65.
- You can only transfer Concessional Contributions (not non-concessional contributions) so it is likely to be limited in how much you can transfer.
- It is not compulsory for any super fund to offer this strategy so you will need to check with your respective super funds as to whether this is an option for your super fund. This is more an issue for the Super Fund of the Spouse making the transfer.
Read more about Superannuation Planning.
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This article is for educational purposes only and cannot be taken as personal advice. It does not take into account any individual’s objectives, financial situation or needs. Any examples are for illustrative purposes only and actual risks and benefits will vary depending on each individual’s circumstances. You should consult with a financial adviser to discuss your personal situation.