- Spouse contributions tax offset: what is it?
- Tax offsets: an easy way to cut your tax bill
- Spouse contributions tax offset: 10 facts you need to know
- 1. Definition of spouse
- 2. Age limits apply for tax offset eligibility
- 3. No work requirements when contributing if spouse under 65
- 4. Residency requirements
- 5. Domestic living arrangements
- 6. Direct contributions only
- 7. Total Superannuation Balance and contributions caps
- 8. Income definition and thresholds
- 9. Limits to tax offset
- 10. Complying super fund
These days it’s rare for a government to be more generous about handing out benefits, but when it comes to helping boost your spouse’s super, that infrequent event is set to happen.
Since 1 July 2017, the maximum income threshold for the spouse contributions tax offset jumped from the previous meagre upper limit of $13,800 to a much more generous $40,000. Before the July 2017 increase, the income levels for this tax offset had not been increased since the introduction of the spouse contributions rebate more than 10 years ago.
The higher income threshold means many more couples are now able to take advantage of this opportunity to boost their partner’s super account, while saving a few dollars in tax at the same time.
Spouse contributions tax offset: what is it?
Being fully or partially out of the workforce due to family duties, study or limited employment opportunities can affect how fast your super account balance grows. To help with this problem, the federal government introduced the ‘spouse contributions tax offset’, to enable a spouse earning a higher income, to be encouraged to make super contributions on behalf of a spouse earning a lower income.
This tax benefit is designed to help couples save for their retirement by providing an 18% tax offset on eligible spouse contributions up to a limit of $3,000 in super contributions. A spouse can make a larger super contribution than $3,000, but the maximum tax offset is $540.
The tax offset can be claimed when one spouse (the ‘contributing spouse’) makes a super contribution into the complying super fund of their eligible spouse (or ‘receiving spouse’).
Continue reading to discover 10 facts you need to know about the spouse contributions tax offset.
Tax offsets: an easy way to cut your tax bill
Although boosting your spouse’s super account balance could provide a good lift to your family’s retirement savings, being able to reduce your tax bill while you’re doing it is an added incentive.
Note: Tax offsets – sometimes referred to as rebates – are not the same as tax deductions. Offsets directly reduce the amount of tax a person must pay after it has been calculated on your taxable income.
Tax offsets are not the same as deductions, which are taken off your income before your tax bill is calculated. In general, offsets can reduce your tax bill to zero, but on their own they cannot get you a tax refund.
Spouse contributions tax offset: 10 facts you need to know
1. Definition of spouse
When it comes to the spouse contributions tax offset, both married and de facto couples are eligible for the tax offset, and the tax offset also applies to same-sex couples.
Note: Most of the rules for making super contributions are the same whether you’re lesbian, gay, heterosexual, married, or de facto. For more information about the importance of the spouse definition, see SuperGuide article Same-sex couples: your super rights explained.
2. Age limits apply for tax offset eligibility
The normal age-based contribution rules apply to individuals hoping to receive the spouse contributions tax offset. Under these rules, the receiving spouse must be under age 70 for the contribution to be eligible for the tax offset. If the receiving spouse is aged from 65 to 69 years, the receiving spouse is required to meet a ‘work test’, under the same rules that apply to the contributing spouse making the super contribution.
For more about the contributions work test, see SuperGuide articles For over-65s: 10 tips when making super contributions and Over-65s work test: how does it operate again?
3. No work requirements when contributing if spouse under 65
Where the receiving spouse is aged 64 years or younger, he or she is not required to be working, to receive a spouse contribution. The absence of a work test for under-65s means, if your spouse is taking time out to care for your children, or for other reasons, he or she is eligible to receive a spouse contribution, subject to meeting the income threshold for the spouse contributions tax offset.
4. Residency requirements
For you to be eligible for the spouse contributions tax offset, both you and your receiving spouse need to be Australian residents when the spouse contributions are made, for them to be valid.
5. Domestic living arrangements
When the spouse super contributions are made, you and your spouse must not have been living separately and apart on a permanent basis.
6. Direct contributions only
The tax offset for eligible spouse contributions cannot be claimed for super contributions that you make to your own fund and then wish to split with your spouse. This type of contribution is permissible however under different rules, and only involves concessional contributions rather than non-concessional contributions. For more information on splitting super contributions, see SuperGuide articles Super for beginners, part 7: Can I split my super benefits with my spouse? and Contributing to your spouse’s super account (4 Q&As) .
Important: An eligible spouse contribution for the spouse contributions tax offset must be made directly to the super fund in your spouse’s name, and not by using some of your employer’s Superannuation Guarantee (SG) contributions, or salary sacrifice contributions, or your personal non-concessional (after-tax) contributions.
7. Total Superannuation Balance and contributions caps
To be eligible for the spouse contributions tax offset, the relevant contributions into your spouse’s super account must be non-concessional (after-tax) contributions. Since 1 July 2017, if your spouse has exceeded his or her non-concessional contributions cap for the year (currently $100,000), the tax offset will not be available when making a spouse contribution.
A spouse contribution will also not be eligible for the tax offset if your receiving spouse has a total super account balance equal to or exceeding $1.6 million, immediately before the start of the financial year in which the contribution was made.
For more information about the non-concessional contributions cap, see SuperGuide article New normal: $100,000 non-concessional contributions cap and for more information about the $1.6 million total superannuation balance, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters.
8. Income definition and thresholds
The ATO defines ‘income’ for the purposes of the spouse contributions tax offset as, assessable income plus total reportable fringe benefits (TRFB) plus reportable employer super contributions (RESC). RESCs are typically salary sacrifice contributions, and do not include Superannuation Guarantee contributions.
For the 2016/2017 year, if an individual has assessable income (plus TRFB and RESC) of less than $10,800, then his or her spouse can claim the maximum tax offset on non-concessional contributions paid directly into the receiving spouse’s super account. For the 2016/2017 year, the tax offset for spouse contributions gradually reduces to zero as the receiving spouse’s income rises, before completely phasing out at incomes above $13,800.
In comparison, since1 July 2017, this lower income threshold has risen to $37,000, and since 1 July 2017, the upper income threshold for phasing out has risen to $40,000.
9. Limits to tax offset
The maximum tax offset available for eligible spouse contributions is $540 when a spouse contributes $3,000 or more to their low income-earning spouse’s super account.
Since 1 July 2017, if an individual receives $37,000 or less in assessable income (plus TRFB and RESC), then his or her contributing spouse can claim the full tax offset of $540, assuming other eligibility requirements are also met (refer to this article). However, the $540 offset progressively reduces until it reaches zero when the receiving spouse earns $40,000 or more in assessable income (plus TRFB plus RESC) in a year.
10. Complying super fund
Your spouse contribution must be made to a super fund that was a complying super fund or retirement savings account (RSA) for the income year in which you made the contribution.
For more information about the spouse contributions tax offset and other ways to contribute to your spouse’s super account, see the following SuperGuide articles: