Author: Emma Partenza, Manager, TAG Financial Services
As is often the case, superannuation balances between spouses can differ greatly. This can be due to many factors including wages, length of time in the workforce, illness, career breaks, or family commitments. In light of the introduction of the transfer balance cap on 1 July 2017, there’s an opportunity for couples to maximise super by contributing to a spouse’s superannuation balance without running into the $1.7M super cap.
Example – Ed and Amy
Take Ed (67) and Amy (59). Ed reduced the balance of his account-based pension account to $1,600,000 on 1 July 2017; resulting in him having pension and accumulation benefits. On the other hand, Amy has significantly less super at $400,000. In this situation, as Ed cannot make any non-concessional contributions, they should consider Ed making a top-up to Amy’s much lower super balance.
Amy is considered a low-income earner, earning less than $37,000 adjusted income, any Non-Concessional Contribution (NCC) made by Ed on her behalf would qualify for a low-income spouse tax offset of up to $540 for the first $3,000 of the contribution he makes for her.
To be eligible for this, Ed and Amy must meet the following criteria:
- both must be Australian residents at the time the non-concessional contributions are made
- contributions must be made to a complying superannuation fund
- spouse contributions must not be made as part of a family law obligation to split contributions
- they must not be living separately or apart permanently when the contributions are made
- Ed cannot claim a tax deduction for the contributions made for Amy
Amy:
- must be under 67 (or if she was between age 67 and 74, then she must have met the work test of at least 40 hours in 30 consecutive days)
- total superannuation balance must be below $1.7M on the 30 June in the prior year to the contribution being made
- must not have exceeded her non-concessional contribution cap for the financial year
- adjusted taxable income must be less than $37,000 for Ed to be eligible for the tax offset. The maximum tax offset of $540 decreases if Amy’s income is above $37,000 and phases out to $0 once her adjusted income reaches $40,000
Assuming they meet the criteria, Ed will be entitled to the full tax offset of $540 for the first $3,000 of the contribution made. As Amy is under 67 and has less than $1.7M in super, Ed can potentially top up her super to the full NCC cap of $330,000 under the bring-forward provisions. However, regardless of the amount contributed, he would only be eligible for a maximum spouse tax offset of $540 in doing so.
If you are reaching your super cap, consider sharing extra earnings with a spouse, it’s a win-win.
If you have any questions about these changes, please contact us on 03 9886 0800 or via email.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.