Spouse Contribution and Contribution Splitting

Topping up your spouse’s super account with some of your own contributions can be a great way to prepare them for life after retirement as well as potential tax saving for yourself in the process.

There are two ways through which you can split your contributions with your spouse. The first and most common route is through contribution splitting. The second option is through spouse contribution.

Before we jump into these two options, let us have a look at the definition of a spouse.

Definition of a Spouse

According to the Tax Office, a spouse is anyone (of any gender) who:

  • You are in a registered relationship with
  • Lives with you on a genuine domestic basis in a relationship as a couple, though you do not have to be legally married

It is worth noting that people in a de-facto relationship meet the definition above.

Contribution Splitting

Contribution splitting involves splitting part of your before-tax contribution made into the Fund with your spouse. Any forms of concessional contributions can be split, including employer contribution, salary sacrifice as well as personal contributions. Up to 85% of your concessional contribution can be transferred to your spouse. If you are member of a public sector super scheme and you receive untaxed splittable employer contribution, 100% of your untaxed splittable employer contribution can be made to your spouse.

In order for your spouse to be eligible to receive the contribution, they have to meet the following conditions:

  • Their age is less than their preservation age, which is dependent on their date of birth
  • Is above the preservation age, but is under 65 years old and not retired

An application form will need to be completed and lodged with the Tax Office in the:

  • Financial year immediately after the year in which the contributions were made OR
  • Financial year the contributions were made, only if your entire benefit is being withdrawn before the end of that financial in the form of a rollover or lump sum benefit payment.

Spouse Contribution

You can also split non-concessional contributions with your spouse. This is done through a spouse and child contribution. You may be able to claim an 18% tax offset of up to $3,000 a year on spouse contribution provided that the following conditions are met:

  • The total of your spouse’s assessable income is less than $37,000
  • Contributions are not deductible to you, this means that only non-concessional contributions can be made as a spouse contribution
  • Both you and your spouse are Australian residents when the contributions are made
  • Your spouse is under 65 years of age or under 70 years of age and they have met the work test

The differences between spouse contribution and contribution splitting are summarized below:

 

Contribution Splitting
Spouse Contribution
Type of Contribution that is Eligible

• Taxable splittable contribution including any concessional contributions

• Untaxed splittable employer contributions (if you are a member of a public sector super scheme)

• Non-deductible contributions (non-concessional contributions)

Age Requirements

• Spouse is under preservation age

• Spouse is above preservation but less than 65 years old and not retired 

• Spouse is under 65 years of age

Spouse is under 70 years of age but has met the work test

Logistical Requirements

• Contribution splitting application form to be lodged with the Tax Office in:

• Financial year immediately after the year in which the contributions were made OR

• Financial year the contributions were made, only if your entire benefit is being withdrawn before the end of that financial in the form of a rollover or lump sum benefit payment

• No forms required to be lodged with the Tax Office. However, the contribution needs to be reflected in the SMSF annual return

Personal Tax Saving

• N/A

• Potential personal tax saving of 18% up to $3,000

Member Account

• Contributions that are split will be treated as a transfer out of your member account and as a rollover in to your spouse’s member account

• Contributions are treated as a regular member non-concessional contribution in the spouse’s member account

Contribution Caps

• Contribution will count towards your own concessional contribution cap (currently at $25,000 per annum. From 1 July 2019 onwards, members can also bring forward any unused concessional cap provided that they meet the requirements)

• Contribution will count towards the spouse’s non-concessional contribution cap (currently at $100,000 per annum)

Trustees can use the contribution splitting and spouse contribution techniques as ways to even up their super balances. This may also allow members to maximise the amount of money that can be retained in the concessionally taxed super environment. Another advantage of both spouses having a similar member balance is that both members can each maximise the full $1.6 million transfer balance cap. This can lead to the SMSF claiming a higher exempt current pension income in the annual return.

Final Note

Lastly, perhaps most importantly, our position is that the SMSF trust deed needs to specifically allow for contribution splitting as well as spouse contribution. Therefore, if you are considering the contribution techniques mentioned in this article, the first step you should do is to review your super fund’s trust deed.

If you have any questions around this, or would like to speak with an advisor, please contact the Partners Wealth Group Audit team today, and they will be more than happy to help you.