Same-sex couples: your super rights explained

In September 2012, the Australian parliament decided that it was not the right time to allow same sex couples to marry. This outcome must be very disappointing for lesbian or gay couples seeking legal recognition of their committed relationship.

Although your relationship may not be equal in the laws of marriage, and in the eyes of many parliamentarians and some Australians, your relationship is definitely considered legitimate, and equal, in terms of your superannuation entitlements.

In terms of superannuation, a same sex couple is treated in a similar way to a married or de facto heterosexual couple. Of course this has not always been the case. Until relatively recently, same sex couples were treated very differently to heterosexual couples (de facto and married), when dealing with certain superannuation entitlements and retirement planning needs.

The good news is that many of the homophobic inequities in superannuation and retirement policy have been eradicated.

Note: Every article on the SuperGuide website applies equally to single, married, de facto, gay, lesbian or heterosexual readers. If you’re part of a couple however, then there are special rules in place when:

• making contributions on behalf of a spouse
• you die, and your partner’s eligibility to your super benefits
• when setting up, and running a DIY super fund (self-managed super fund)
• when divorcing or separating

I explain these special rules later in the article.

Everyone is treated equally, nearly

Superannuation is a work entitlement for nearly all employees. If you earn more than $450 a month, then your employer is currently required to pay the equivalent of 9% of your wages or salary to a super fund (Superannuation Guarantee). The employer payment is known as a super contribution, and the compulsory contributions are required to be paid at least quarterly.

You can also make your own super contributions. You can make before-tax contributions (salary sacrifice or tax-deductible contributions), or you can make after-tax contributions (known as non-concessional contributions) which may be deducted from your take-home pay, or you source them from your private savings.

As an Australian employee entitled to superannuation, or a self-employed individual making your own super contributions, you can expect to receive tax incentives on your superannuation at four different stages:

• Before-tax contributions (concessional contributions). When you, or your employer, makes concessional (before-tax) contributions. Your employer’s Superannuation Guarantee contributions are concessional contributions.
• Co-contribution. When you receive a co-contribution. You’re eligible for a co-contribution when you make non-concessional (after-tax) contributions, and your annual earnings are below a certain level of income.
• Investment earnings. When your super fund earns income (after investing your concessional and/or non-concessional super contributions)
• Tax-free retirement benefits. When you eventually receive your superannuation benefit (tax-free benefits when paid on or after the age of 60 for most Australians).

So far, so good…

What was wrong with our superannuation system?

In the very recent past, same-sex couples received different treatment financially when dealing with superannuation because two people of the same gender in a relationship were not considered ‘spouses’. The term ‘spouse’ has great significance in superannuation land especially in terms of taxation concessions.

Although there were other categories, such as ‘interdependent relationship’ (only introduced in June 2004) and ‘financial dependant’, that same-sex couples could use to try to receive the same benefits as heterosexual couples, they had to leap through a lot more hoops and the outcome was often unfavourable.

The lengthy delays in legally recognising same-sex relationships when dealing with superannuation seems to be more a symptom of an out-of-touch legislature and an inert superannuation industry rather than a deliberate form of discrimination (with the exception perhaps of one very stubborn former Prime Minister by the name of John Howard). For example, discrimination still exists for many women and the self-employed. The lynchpin of the super system in Australia – compulsory employer contributions – still fails to recognise that a significant minority of the population are self-employed, and that many Australians, particularly women, take substantial periods of time out of the paid workforce.

The Australian superannuation system isn’t perfect and it has struggled to reflect the reality of modern family life. Even so, a superannuation industry and parliament that failed to recognise social and cultural change was no excuse for such blatant discrimination involving a compulsory work entitlement.

The days of unfair superannuation treatment are now in the past for same-sex couples. Well…nearly in the past. The rules applicable for de facto couples (both heterosexual and same-sex) when divvying up superannuation assets upon a relationship breakdown are still fairly fraught.

Superannuation is gay-friendly, finally

For the purposes of superannuation, a ‘spouse’ now means:

• a person you are married to (same-sex couples are not able to marry in Australia)
• a person who you are in a relationship with and that relationship is registered under a state or territory law (this includes a same-sex relationship)
• a person, regardless of gender, living with you in a relationship as a couple (de facto spouse)

If you’re part of a couple (same-sex or heterosexual) there are special rules in place when:

1. making contributions on behalf of a spouse
2. you die, and your partner’s eligibility to your super benefits
3. when setting up, and running a DIY super fund (self-managed super fund)
4. when divorcing or separating

If you’re in a same-sex relationship, you need to be aware of these four main areas where the superannuation rules have now changed – for the better! Heterosexual spouses (married or de facto) and same-sex spouses (de facto) are now treated in a similar way when dealing with certain superannuation entitlements.

1. Making super contributions

Most of the rules for making super contributions are the same whether you’re lesbian, gay, heterosexual, married, single, or divorced. In two instances, the contribution rules are different when a couple (same-sex or heterosexual) is involved:

• Contribution splitting. You can split your concessional (before-tax) super contributions with your spouse. Australians use this strategy as a means to boost a partner’s super benefits. Note that the contributions will still count towards your concessional contributions cap. I explain contribution splitting, and how it works in the article Super for beginners, part 7: Can I split my super benefits with my spouse?
• Spouse contributions. If your spouse has assessable income  of less than $13,800, then you can make super contributions on behalf of your spouse (this is not splitting your own contributions), and you can claim a tax offset of up to $540. I explain this opportunity in more detail in the article Boosting your spouse’s super account.

2. Looking after your partner if you die

A same-sex partner now meets the definition of ‘spouse’ which means in the event of your death, or your partner’s death, any superannuation benefits paid out to your partner, or you, as a death benefit will be tax-free as a lump sum. The death benefit is likely to be tax-free as a pension (if aged 60 or over on death, or surviving partner is over 60). No ‘ifs’ and ‘no buts’ (unless you’re a member of certain public sector super funds and then some benefits may be taxable, although this applies to all fund members).

Before June 2004, it was a lottery whether a same-sex partner could, firstly, receive his or her partner’s death benefits, and secondly, it was likely that up to 31.5% tax would be deducted from the benefit. A same-sex partner would have been considered a non-dependant and the super benefit would have been subject to a ‘death tax’. If the couple had been a heterosexual couple, the surviving partner would have been considered a ‘dependant’ as the spouse of the deceased fund member, and receive the benefit tax-free. Now, that was not very fair for same-sex couples.

Before July 2008 but after June 2004, it was likely a surviving same-sex partner would be entitled to his or her partner’s super benefits but they would have to satisfy a special test confirming they had an ‘interdependent’ relationship. The test appeared quite intrusive compared to the lack of testing necessary for heterosexual de facto couples.

Since July 2008, heterosexual and same-sex couples are treated in the same way in terms of superannuation when a member of a couple passes away.

Note: The rules that apply to public sector super funds have also changed. If your partner dies and he or she is receiving a defined benefit pension from a public sector fund, then you will now be recognised as a reversionary beneficiary and receive a pension from the same super fund. If this applies to you, ask the relevant super fund for more information.

3. Setting up and running a DIY super fund

Including a same-sex partner in the definition of spouse has three main implications for individuals running, or considering running, a self-managed super fund (SMSF):

• The eligibility rules for SMSF members have become a lot more straightforward for a same-sex couple wanting to run a SMSF together
• SMSF trustees cannot lend money to a member or a relative of a member. A same-sex partner is now considered a ‘relative’ (effective from 4 December 2008).
• Anti-detriment rules apply to a same-sex partner dependant. I explain the anti-detriment rules in the article How can a SMSF live forever? 

4. Relationship breakdown (separating)

In the not-too-distant past, when a same-sex couple separated, if there were any disagreements regarding the division of assets, then the only option was to go to court (and not a Family Law court) and incur huge costs.

The laws in many States changed a few years ago to ensure that same-sex de facto couples had the same rights as heterosexual de facto couples in the event of a relationship breakdown, except in the case of superannuation. After the first batch of law changes, a same-sex couple could now take superannuation assets into account when parting ways but the superannuation benefit could not be split and divvied up between the couple into two separate accounts.

The rules have been updated since then. The Federal laws relating to the recognition of superannuation assets within a same-sex relationship have now changed, and benefit splitting is now permitted although very complicated. Separating for any couple can be very tricky and I suggest you chat with a lawyer who regularly deals with same-sex couples when working out an agreement.

Note: The rules applicable for de facto couples seeking a property settlement are still more complicated than the rules applicable for married couples.

You can find out more information about the changes to the laws for same-sex couples, including the changes to Social Security, Immigration, Citizenship and Age Care rules by visiting the special same-sex reforms page on the Attorney General’s website. Click here for more information.