Q: I am 42 years old and my partner is 57 years old. We have a very big mortgage as we are both the casualties of wealth destroying divorces and single parenthood! We intend to pay off our mortgage before putting more into our superannuation. Can I transfer part of my superannuation to his fund now, as I have much longer working life ahead of me, so that he can at least be getting the benefit of compounding? I know this can be done in divorce settlements so I assumed may be superannuation assets can be shifted around within a marriage as well?
Couples are only permitted to split super benefits if they separate or divorce, but married couples and de facto couples (including same-sex de facto couples) can split certain types of super contributions. The type of contributions that can be split with a spouse are concessional (before-tax) contributions.
A spouse can also claim a small tax rebate when making non-concessional (after-tax) contributions on behalf of a low-income spouse.
Before we answer your question in more detail, we will briefly outline the contributions caps that apply to superannuation contributions.
Note: If readers are seeking information about what happens to super benefits when a relationship breaks down, see SuperGuide article Divorce and superannuation: Who gets what?
Australians wanting to make additional super contributions to their super accounts can make two types of super contributions – concessional contributions and non-concessional contributions.
Concessional contributions: Concessional contributions include compulsory employer contributions (Superannuation Guarantee), additional employer contributions, additional contributions made under a salary sacrifice arrangement or tax-deductible super contributions.
Important: Since 1 July 2017, the annual concessional contributions cap is $25,000 for all ages (for more information, see SuperGuide article Cut to concessional contributions caps: the back story). Note that the concessional cap includes any employer contributions (Superannuation Guarantee) made on a person’s behalf.
The concessional contributions cap has been reduced since July 2017, compared with previous years. For the 2018/2019 and 2017/2018 financial years, the annual concessional cap is $25,000. For the 2016/2017 year (1 July 2017 to 30 June 2017), if a person was aged 48 years or under on 30 June 2016, he or she could make up to $30,000 in concessional (before-tax) contributions for the 2016/2017 year. For the 2016/2017 year, if a person was aged 49 years or over on 30 June 2016, then he or she could make up to $35,000 in concessional contributions for the 2016/2017 year. Again, noting that the concessional cap includes any employer contributions (Superannuation Guarantee) made on a person’s behalf.
Non-concessional contributions: The annual cap for non-concessional (after-tax) contributions is $100,000 for the 2018/2019 year (and was the same for the 2017/2018 year), and was $180,000 for the 2016/2017 financial year (for the latest information on this new, lower after-tax contributions cap, see SuperGuide article New normal: $100,000 non-concessional contributions cap).
Super alert! Since 1 July 2017, Australians with a total superannuation balance of $1.6 million or more cannot make non-concessional contributions, and Australians with a total superannuation balance of more than $1.4 million have restrictions on the amount of NCCs they can contribute. For more information about the concept Total Superannuation Balance, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters. Further, Australians can transfer no more than $1.6 million into retirement phase (see SuperGuide articles Retirement phase: A super guide to the $1.6 million transfer balance cap and Superannuation death benefits and the $1.6 million transfer balance cap).
I explain the contribution rules in more detail in the following SuperGuide articles:
- Super concessional (before-tax) contributions: 2018/2019 survival guide
- Your 2018/2019 guide to non-concessional (after-tax) contributions
Splitting contributions: how does it work?
An individual cannot split non-concessional contributions with his or her spouse, but an individual can split concessional (before-tax) contributions with a spouse provided that the super fund the individual belongs to permits contribution splitting. The practical effect of such a split is that 85% of the contribution reaches the spouse account because super funds deduct the 15% contributions tax before splitting.
Note: If you’re a member of certain public sector funds, your employer’s contributions made to your account may be considered ‘untaxed splittable employer contributions’, which means no contributions tax is deducted on entry and consequently means that 100% of the concessional contribution can be split, subject to the amount being within your concessional contributions cap.
Splitting super contributions can be popular in the instance where a higher-income earning spouse salary sacrifices contributions (or makes tax-deductible contributions), and then splits the contributions with the lower-income earning spouse. The higher-income spouse gets the tax break and the other spouse gets a larger super benefit.
Typically, there are two main advantages with the contribution splitting strategy:
- If you’re planning to retire under the age of 60 and take all or part of the super benefit as a lump sum, then each member of a couple can access their own tax-free threshold for lump sums (relating to the taxable component) of $205,000 (for the 2018/2019 year). For more information on the tax treatment of super benefits taken before the age of 60 see SuperGuide article Retiring before the age of 60: the tax deal.
- If your partner is a few years older than you, then by splitting super contributions with an older spouse, they can access super benefits at an earlier stage. The older partner also reaches 60 first, which means tax-free super benefits at an earlier time. For more information on tax-free super for over-60s works, see SuperGuide article Tax-free super for over-60s, except for some.
Tax alert: The federal government has introduced an additional tax of 15% on the concessional super contributions of high-income earners (those with adjusted taxable income of more than $250,000). If this applies to your circumstances, then some period of time after your income tax return is lodged (and after your super fund also lodges its return), the ATO will send a notice, indicating the amount of additional tax payable. If you’re liable for this extra tax, you can authorise your super fund to deduct it from your super account, or arrange to pay that tax directly. For more information on the extra contributions tax for high-income earners, see SuperGuide article Double contributions tax for more high-income earners.
Splitting contributions: what are special rules to watch out for?
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.
It is important to understand that if an individual is planning to split super contributions with a spouse, then the receiving spouse MUST be under the age of 65 and NOT retired. More specifically, the receiving spouse must meet one of two conditions: they must be under their preservation age, or if they are older than their preservation age, then they must be under the age of 65 and NOT retired. For information on preservation age, see SuperGuide article Accessing super: Preservation age moves to 59 years.
The individual must also complete a special form stating they intend to split super contributions.
Note: You can only split contributions made in the previous year. For example, contributions made during the 2018/2019 can only be split during the 2019/2020 year, and contributions made during the 2017/2018 year can only be split during the 2018/2019 year.
Warning: If you plan to claim a tax deduction for super contributions, then that notice to claim a deduction must be lodged BEFORE the super splitting declaration.
If you’re considering taking advantage of the super splitting strategy we suggest you get some tax advice, and potentially retirement planning advice, to ensure you fully understand the financial implications of such a strategy.
Note: The relevant contributions cap is the one that applies TO THE PERSON MAKING the super contributions, rather than the person receiving the split contributions.
Spouse contributions and tax offset
Generally, ‘spouse contributions’, that is non-concessional (after-tax) contributions made directly to a spouse’s super account, can be tax-advantageous where one of the spouses has part-time paid work or no paid work.
Super alert! Since 1 July 2017, the income thresholds for the spouse contribution tax offset jumped to $37,000 (lower) and $40,000 (higher). Note that the income thresholds had not changed since the introduction of the spouse offset about nearly 20 years ago. The good news is that the federal government has now broadened the scope of the spouse contribution tax offset. Since 1 July 2017, the lower income threshold has lifted to $37,000 (and cuts out at $40,000). The maximum amount of tax offset has not changed. A contributing spouse will be able to claim an 18% offset worth up to $540 for contributions made to an eligible spouse’s superannuation account.
For the 2018/2019 year, if an individual has assessable income (plus total reportable fringe benefits plus reportable employer super contributions) of less than $37,000, then his or her spouse can make contributions on behalf of the low-income spouse and claim a tax offset. Reportable employer super contributions are employer contributions other than Superannuation Guarantee contributions, and RESC includes salary sacrifice contributions made on behalf of an employee.
For the 2018/2019 year, if an individual receives $37,000 or less in assessable income (plus reportable fringe benefits and 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 $3000 is made to the low-income spouse’s super account. The tax offset is progressively reduced until the tax offset reaches zero for spouses who earn $40,000 or more in assessable income (plus reportable fringe benefits plus reportable employer super contributions) in a year.
Similar rules applied for the 2017/2018 financial year. For more information on the spouse contributions tax offset, see SuperGuide article Spouse contributions tax offset: 10 facts you need to know.
For the 2016/2017 year: For the 2016/2017 year, if an individual has assessable income (plus total reportable fringe benefits plus reportable employer super contributions) of less than $13,800, then his or her spouse can make contributions on behalf of the low-income spouse and claim a tax offset. For the 2016/2017 year, if an individual receives $10,800 or less in assessable income (plus reportable fringe benefits and 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 $3000 is made to the low-income spouse’s super account. The tax offset is progressively reduced until the tax offset reaches zero for spouses who earn $13,800 or more in assessable income (plus reportable fringe benefits plus reportable employer super contributions) in a year.
Before July 2017, a not uncommon strategy for a couple, where one spouse was older, super contributions were split to the older spouse. An individual who has reached preservation age (age 55 for those born before July 1960, and at least age 57 for those born on or after 1 July 1961, and at least age 58 for those born on or after 1 July 1962, and up to 60 years, for those born after June 1964) can start a superannuation pension before retiring. This special type of pension is known as a transition-to-retirement-pension (TRIP, also known as a TRIS), and allows older Australians to plan, and manage, retirement in a more flexible way. Although less popular post-July 2017 (due to the removal of some tax incentives), we explain TRIPs in the SuperGuide article Less tax, more super? A transition-to-retirement pension is no longer the answer.
For more information about boosting your spouse’s account
For more information about your spouse and super, see the following SuperGuide articles: