When planning for retirement, one effective strategy to maximise tax benefits and grow retirement savings is through spouse contributions. These contributions allow individuals to make superannuation contributions on behalf of their spouse, potentially receiving a tax offset while helping to build the spouse’s retirement balance.
In this article, we will explore how spouse contributions work, their eligibility requirements, and the steps to implement this strategy.
What Are Spouse Contributions?
Spouse contributions involve making voluntary non-concessional contributions to your spouse’s superannuation account. This strategy not only boosts your spouse’s retirement savings but may also provide you with a tax offset of up to $540, depending on your spouse’s income and the contribution amount.
For the 2024/25 financial year, the spouse contribution tax offset applies when your spouse’s income is below $40,000, with the maximum offset available if their income is $37,000 or less.
Calculating your Entitlement
The income assessed for this purpose includes assessable income, reportable fringe benefits, and reportable employer super contributions. The table below outlines the calculation:
| Spouse’s income | Tax offset entitlement |
|---|---|
| Up to $37,000 | 18% of the contribution (maximum offset on $3,000) |
| $37,001 – $39,999 | 18% of $3,000 – (Spouse’s Income – $37,000) |
| $40,000 and above | Nil |
As illustrated above, the maximum contribution that qualifies for the offset is $3,000. Contributions beyond this amount will not increase your entitlement.
Eligibility
Before making spouse contributions, ensure you and your spouse meet the following criteria:
- Age Restrictions: The receiving spouse must be under 75 years old when the contributions are made.
- Income Threshold: The receiving spouse’s income (including assessable income, reportable fringe benefits, and reportable employer super contributions) must not exceed $40,000.
- Contribution Cap: The receiving spouse must not exceed their non-concessional contributions cap or have a total super balance exceeding the general transfer balance cap at the start of the financial year.
Steps to Make Spouse Contributions
Once you have confirmed you and your spouse meet the eligibility criteria, making the contributions is relatively easy. Simply follow the below:
- Contribute to Super: Make a contribution to the spouse’s account. It is best to contact your super fund for specific instructions, such as forms, BPay details, or reference codes.
- Claim the offset in your tax return: When completing your tax return, indicate you’ve made a spouse contribution and provide the necessary details to claim the offset. There is a specific section in your tax return for this.
Benefits
The key benefits to making a spouse contribution include the following:
- Tax Offset: Receive a tax offset of up to $540, the equivalent to an 18% risk-free return on contributions of $3,000 where eligible for the maximum entitlement.
- Boost Retirement Savings: Transition funds into superannuation, where they can grow in a tax-effective environment.
- Increase Age Pension Entitlements: For couples with one partner below Age Pension age, assets in the younger spouse’s accumulation account may be exempt from the income and assets test.
Considerations and Risks
While spouse contributions offer significant advantages, it’s essential to understand the potential risks:
- Preservation Rules: Contributions are locked in super until a condition of release, such as reaching preservation age and retiring, is met.
- Legislative Changes: Superannuation rules can change, which could impact your retirement strategy, particularly if you’re far from retirement age.
- Excess Contributions Penalty: Exceeding your non-concessional contributions cap, including any bring-forward amounts, can result in a tax penalty of 47% on the excess amount, plus associated earnings.
- Super Fund Suitability: Before putting any additional money into superannuation, you want to ensure you understand (and are comfortable with) the investment strategy and fee structure within your super fund.
The Guided Investor approach
Spouse contributions are a valuable strategy for couples seeking to enhance retirement savings while benefiting from immediate tax offsets. By incorporating this approach into a broader financial plan, couples can optimise retirement outcomes.
At Guided Investor, we assess the suitability of spouse contributions from Phase 2 of our Wealth Creation process onwards.
