Q: I’m fully employed while my wife has not been working, and she is unlikely to return to work before the end of this financial year (end of 2017/2018 year), and most likely some time during the 2018/2019 year. My question concerns maximising tax strategies for this year (2017/2018 year) and next year (2018/2019). Can I make super contributions on her behalf in after-tax dollars, and claim a tax deduction for those contributions, and can we also claim a co-contribution by the government? I am probably looking at contributing somewhere between $5,000 and $10,000.
Answer: Your question contains several questions – all of them very popular questions. Each question is answered separately, and set out below.
- Is my non-working spouse eligible for the co-contribution scheme?
- Can I take advantage of the spouse offset and save up to $540 in tax?
- Can my non-working spouse make super contributions?
- Can I make concessional contributions and split them with my spouse?
Note: A spouse includes a married or de facto same-sex spouse. Where the relationship status of an individual is relevant, nearly all super rules equally apply to same-sex couples. (For more information on same-sex couples and super, see SuperGuide article Same-sex couples: your super rights explained.)
1. Is my non-working spouse eligible for the co-contribution scheme?
Unfortunately, the co-contribution scheme is only available to individuals in employment or self-employment, which means anyone unemployed or involved in non-paid work for the full financial year is not eligible for the 2017/2018 co-contribution entitlement, or in turn, if doesn’t satisfy the co-contribution work test for the 2018/2019 year, won’t be eligible for the 2018/2019 entitlement. For more information on the co-contribution rules, see SuperGuide article Cashing in on the co-contribution rules (2018/2019 year).
2. Can I take advantage of the spouse offset and save up to $540 in tax?
From the 2017/2018 year onwards, the income thresholds for the spouse contribution tax offset have jumped to $37,000 (for lower threshold) and $40,000 (for upper threshold). Before July 2017, the income thresholds were $10,800 (lower) and $13,800 (upper threshold).
For the 2017/2018 year, if an individual has assessable income (plus reportable fringe benefits plus reportable employer super contributions) of less than $37,000, then his or her spouse can make non-concessional contributions on behalf of the low-income spouse and claim a tax offset. The maximum tax offset available is $540, when a spouse contributes $3,000 or more to their low-income spouse’s super account. If an individual receives $37,000 or less in assessable income (plus reportable fringe benefits plus reportable employer super contributions), then his or her spouse can access the maximum tax offset of $540, provided an after-tax (non-concessional) contribution of at least $3,000 is made. The tax offset is progressively reduced until the tax offset reaches zero for spouses who earn $40,000 or more in assessable income (plus RFB plus RESC) in a year.
Note that before July 2017, the income levels for this tax offset had not been increased since the introduction of this spouse rebate more than 10 years ago, so the increase in the income thresholds from July 2017 is good news. For more information on how the spouse contributions tax offset works, see SuperGuide articles Spouse contributions tax offset: 10 facts you need to know and Super for beginners, part 7: Can I split my super benefits with my spouse?
Super alert! A spouse cannot make super contributions on behalf of his or her spouse, if the spouse receiving the super contributions has a Total Superannuation Balance of $1.6 million or more at the end of the previous financial year. For the 2017/2018 financial year, TSB is measured as at 30 June 2017. The receiving spouse will also not be eligible for the spouse contributions, if the receiving spouse has exceeded their non-concessional (after-tax) contributions cap. For more information about your TSB, or your spouse’s TSB, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters).
3. Can my non-working spouse make super contributions?
Any individual under the age of 65 can make super contributions, regardless of whether they are working or not. For example, an unemployed person can contribute non-concessional (after-tax) contributions. Concessional (before-tax) contributions are also possible, but if an individual is not employed or not earning some type of income, making before-tax contributions is unlikely to be a tax-effective option (note that a government-funded refund of contributions tax is available for individuals earning less than $37,000 a year – see SuperGuide article LISTO: Super tax refund for lower-income earners.
Note: From 1 July 2018, the federal government will allow older Australians (65 and over) to contribute part or all of the proceeds of their home (up to a limit of $300,000 per individual), without the need to satisfy a work test, and individuals aged 75 years or over are also eligible. The downsizing and super policy became law in December 2017. For more information, see SuperGuide articles Contributing super by downsizing your home: 10-point guide and Over 65? Sell your home and contribute more to super.
4. Can I make concessional contributions and split them with my spouse?
You mention in the question about the possibility of making tax-deductible contributions on behalf of your wife. The general rule is that the tax deduction relates to the person making the contribution, and that the super contribution must be on behalf of the person claiming the deduction. Fortunately, there is an exception when a spouse is involved.
An individual can make concessional (before-tax) contributions to a super fund, including a self-managed super fund, and arrange to split those contributions with a spouse. The concessional contribution can take the form of a salary sacrificed contribution (if employee) or a tax-deductible super contribution (if self-employed).
Since 1 July 2017, employees can also make tax-deductible super contributions (see SuperGuide article Employees can now make tax-deductible super contributions (since July 2017)).
If an individual is planning to split super contributions with a spouse, then the receiving spouse must be under the age of 65. The individual must complete a special form stating they intend to split super contributions.
Note that if an individual is planning to claim a tax deduction for super contributions, then that notice to claim a deduction must be lodged BEFORE the super splitting declaration. Another condition for taking advantage of this splitting option, is that you can only split contributions made in the previous year.
You can find more information on splitting super contributions in the SuperGuide article Super for beginners, part 7: Can I split my super benefits with my spouse?