Whether you’re married or in a de facto relationship there are many benefits to having a partner, including tax write-offs. You might share things with your partner like a mortgage or a car, but did you know you also might be able to help them boost their super?
If you (or your partner) were unable to work for an extended amount of time, such as during paternity/maternity leave, unemployment, or if you are a single-income household, the super fund of the non-employed member may not be growing.
The good news is that you can boost the super of your non-working spouse with your own contributions. In even better news, it could also be a tax write-off.
How do spousal super contributions work?
A spouse may be either a legally married partner whom you live with or your de facto partner under Australian superannuation law. This adds to the benefits of those in de facto relationships, allowing them to choose (if one member of the relationship isn’t working or earning less) to increase their partner’s super fund. It’s important to note that when you make the contribution, your spouse must be younger than 75 years old.
Paternal or maternal leave are two of the most common super losses. If you and your spouse are considering starting a family and may have to take time off work during or after pregnancy, spousal contributions might be an excellent option to keep money flowing into super so that the gap between leaving your job and returning to work can be reduced.
How to help supercharge your spouse’s super
There are two ways you can help your spouse’s super grow;
- Make a Spouse Contribution to their super account
- Arrange for Contribution Splitting (also known as Super Splitting)
Spouses earning up to $40,000 per year can now make spouse superannuation contributions. If a spouse makes less than $37 000, they may claim the maximum tax offset of $540 when contributing at least $3 000 to their super. Anything contributed that is more than $3000 will not be eligible for the spouse contribution tax offset.
You will not be able to claim the tax offset if:
- A spouse has exceeded their non-concessional contributions cap for the financial year or,
- Their super balance is $1.6 million (for 2020/21) or more on 30 June of the previous financial year in which the contribution was made.
If you want to add a few dollars to your spouse’s super account, you can do it by choosing to have part of your own super contributions added. This is acceptable as long as they haven’t reached their preservation age yet, or are between their preservation age and 65 years old but not retired.
If you want to split your super contributions, you must do so within a year of receiving them or in the same financial year as they were made. This is only permissible if your entire benefit is withdrawn before the end of that financial year as a rollover, transfer, lump sum, or benefit.
Contributions can be split in two different ways:
- Employer contributions – the most common form of super contributions to split
- Personal tax-deductible contributions – money that you deposit into your super and claim a tax deduction
Difference between spouse contributions and contribution splitting
Spouse contributions are generally treated differently to contributions your spouse splits with you.
It is important to keep in mind that if your spouse makes a contribution for you, it only counts toward your non-concessional contributions limit – not your spouse’s. If you are currently employed by your spouse any contributions made by your spouse while they were in this role are recorded as employer contributions (not spouse). They may also include amounts transferred under a family law obligation from your spouse’s or ex-spouses FHSA.
Spousal contributions are an excellent way to bolster your partner’s super fund and increase their retirement savings. The tax benefits of spousal contributions make it a win-win for both parties. Keeping in mind the differences between spouse contributions and contribution splitting will help you determine which option is best for you and your partner.
If you’re thinking about making spousal contributions to super, contact your financial advisor or superannuation provider for advice on the best way to proceed.