A guide to super and spouses
Help boost your partner’s super with one of these strategies. Here’s what you need to know.
Have you heard of terms such as “super splitting,” “spouse contributions” or “super contribution splitting”? All of these phrases may sound like they’re describing the same thing, but they’re not. Sharing your superannuation with your partner can be beneficial to both of you but before you deposit a lump sum in their fund, you need to be aware of a couple of different strategies, which sound very similar.
Super splitting is when funds are transferred from your super account into your spouse’s account. On the other hand, a spouse contribution is contributing funds into your partner’s account with super funds that aren’t already held in super. Both involve allocating some retirement savings into your spouse’s super.
Related link: Learn about the recent changes to super concessional contributions
This can perhaps be more common for a male partner to contribute into their wife’s super fund, since women generally have much less superannuation than men due to a number of reasons, such as taking time out of the workforce to raise a family.
Will Chapman, a financial planner with South Australian-firm Goldsborough Financial Services, says each strategy has the benefit of growing your spouse’s super. This can help if your partner is older and can therefore access their super earlier, or if they want to have risk insurance premiums paid for from their super rather than meeting this expense from their ordinary cash flow. “Any investment returns for funds in super may then be taxed at a lower ongoing rate than a person’s income threshold,” he says.
Mr Chapman adds that super splitting can also utilise two “low rate caps” (one per person) for lump sum taxable withdrawals from super, which can significantly save on tax. For spousal contributions, a person can access a tax offset of up to $540 per year, which also saves on tax. While each strategy effectively involves putting funds into your spouse’s super, there are different rules for each. Here’s a guide to what you need to know.
Spouse contribution
A spouse contribution is an after-tax payment that can be allocated to a complying super fund held in your spouse’s name. Basically, you’re putting money into your partner’s super and not your own.
When making a contribution into your partner’s fund, they’ll need to be both eligible to receive super and 64 or younger. Once your spouse turns 65, they’ll need to meet a work test (having worked at least 40 hours in 30 consecutive days) to have voluntary contributions put into their fund.
On top of boosting your partner’s super, you can get benefits too. If your husband or wife is a low income earner or doesn’t work, you can get a tax rebate of up to $540 a year for contributions you have made on their behalf. When it comes to the eligibility of the tax offset, your partner will need to have an assessable income lower than $13,800 per year.
Super splitting
Super splitting refers to transferring some of your existing super into your spouse’s super fund. Again, you’re putting money into your partner’s super fund, but this time the money is coming from your own super account.
This strategy allows a person to split their concessional contributions received within a financial year with their spouse, providing a way to equalise the amount saved for retirement between a couple. It’s a good way to help your partner’s super grow and potentially reduce the amount of tax you might pay.
“Super splitting will allow up to 85 per cent of the contribution made into your super fund to be split with your eligible spouse (below the age limit and not retired) and is applied for each financial year (for the contributions made in the year before),” Mr Chapman says. “Those contributions can include employer contributions and personal ones as well.”
What to consider
Whether it’s for tax reasons, cash flow or estate planning, these strategies can be applied to a broad range of people and their personal circumstances. When you’re looking at using one of the strategies to help boost your partner’s super, keep in mind that by making contributions or changing your super you may also be locking access to funds inadvertently. Before making any decision, seek professional financial advice to see if the strategy you’re looking at is right for you.