In today’s blog, we’ll explore how you can strategically leverage spouse super contributions for maximum financial benefits. In this comprehensive guide, we’ll walk you through two powerful strategies, splitting your contributions with your spouse and claiming a tax offset for contributions made on their behalf. Let’s dive into the intricacies of each method.
Methods of Contributing to Your Spouse’s Super
Let’s start with some ways you can contribute to your spouse’s super. There are two primary ways, such as contribution splitting and direct contributions.
Contribution Splitting: Contribution splitting allows you to share the contributions you’ve made to your super with your spouse. It involves applying to split your employer and personal concessional contributions made in the previous income year.
Direct Contributions: You can make a super contribution directly to your spouse’s super treated as their non-concessional contribution, which may entitle you to a tax offset. To initiate this process, submit the superannuation contribution splitting application after the end of the income year. Keep in mind that there are specific restrictions on the type and amount of contributions eligible for splitting.
Treatment and Reporting
Contributions split with your spouse are termed a contribution splitting super benefit. It’s essential to grasp that this isn’t considered a new contribution for your spouse, but rather a rollover this nuanced treatment ensures it doesn’t affect your contributions cap or alter their characteristics.
Tax Offset for Super Contributions on Your Spouse’s Behalf
Now, let’s delve into claiming a tax offset for making contributions directly to your spouse’s super. To qualify, your spouse’s income must be below $40,000. And specific conditions apply. The offset amount diminishes as your spouse’s income increases completely phasing out at $40,000. It’s important to understand the calculation complexities and eligibility conditions. The claim is made in your tax return and it’s important to note that it can’t be applied to contributions split from your own fund. This is considered a transfer or rollover, not a contribution.
To bring these concepts to life. Let’s explore real-life examples.
Example 1: Meet Robert and Judy a couple successfully claiming a tax offset.
Robert earns $19,000 in the 2018 to 19 financial year.
Judy makes a $3500 contribution to Robert’s Super Fund.
Robert and Judy meet the eligibility criteria to claim a tax offset. Judy can claim a tax offset in her 2018 to 19 tax return for the contributions made to Robert’s Super Fund.
The calculation of tax offset is made as 18% of the lesser of:
$3000 minus the amount over $37,000 that Robert earned (In this case, nil)
the value of the spouse’s contributions, which is $3500 in this case.
Judy can claim a tax offset of $540 being 18% of $3000.
Example 2: Another scenario features Carmel and Adam who successfully claim a part tax offset. This example focuses on the importance of understanding the nuances to maximise available benefits. Carmel is 46 years old with an income of $38,000 per year. Carmel has not exceeded her non-concessional contributions cap and her total super balance is under $1.6 million. Adam wants to make a super contribution on Carmel’s behalf of $3000 to her complying Super Fund. Carmel’s income is under the threshold. Adam is eligible for a tax offset. However, as Carmel earns more than $37,000 per year, Adam will not receive the maximum tax offset of $540. Adam’s entitlement is 18% of the lesser of:
$3000 minimised by every dollar over $37,000 that Carmel earns.
The value of spouse contributions.
Carmel earns $1000 over the $37,000 income threshold. Adam’s tax offset is $360 calculated as 18% of $2000 ($3000 reduced by the $1000 that Carmel earned over the $37,000 income threshold).
Claiming the Offset
To claim the offset, ensure you include it in your tax return under T3 superannuation contributions on behalf of your spouse. This straightforward step is pivotal in maximising your financial benefits.
In conclusion, a well-thought-out strategy in spouse super contributions can lead to substantial financial benefits. If you found this information insightful, don’t forget to seek help from Reliable Melbourne Accountants for financial planning tips.
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