Most of the time, growing your super balance is quite an individual pursuit. But what can you share with your spouse and when can you do it?
While you may well be building a retirement nest-egg with a spouse or partner, you can’t treat your combined super as a joint asset in the same way as you might treat (say) a jointly owned home or investment portfolio.
Having an SMSF at least means you can share the management of your super but even in an SMSF, two members of a couple have their own distinct member accounts behind the scenes.
But there are a few unique ways to genuinely share the saving process that are only available to couples – spouse contributions and contribution splitting. (Note that a spouse, when it comes to super, isn’t just “husband and wife” situations. It includes de facto and same sex relationships as well.)
Spouse contributions happen when one member of a couple (let’s call them the contributing spouse) puts money into their spouse’s super account (let’s call this person the receiving spouse) rather than their own.
Making these contributions is easy – broadly speaking the rules are exactly the same as if the receiving spouse was making the contribution themselves. For example, the receiving spouse (not the contributing spouse) needs to be under 67 years old or between 67 and 75 and have met some other tests that relate to how much and when they last worked. (The contributions aren’t available if the receiving spouse is over 67 and has been retired for many years, for example.) The contributing spouse can’t claim a tax deduction for these contributions – you can only claim a personal tax deduction for contributions that are for you. And they count towards the usual limits that apply for these types of contributions (known as “non-concessional contributions”). For most people, this means that spouse contributions are limited to $110,000 per year (or up to $330,000 if they are eligible to make three years’ contributions at once).
Using these rules, it’s possible for one person to contribute (say) $330,000 for themselves and also $330,000 for their spouse.
Of course, they could just give the cash to their spouse first and have the spouse contribute the amount personally. And that’s often the case.
But there are two circumstances where spouse contributions can be extremely handy.
One is where the contribution is (say) an asset that is owned exclusively by the contributing spouse (say a portfolio of listed shares) that is going to be moved into an SMSF (known as an “in specie” contribution). In this case, the ability to just make the contribution for the spouse, rather than give the money or asset to them first, is extremely convenient.
There is also a small tax break for the contributing spouse if the receiving spouse earns less than $40,000 pa. The contributing spouse is eligible for a tax offset of up to $540 (ie, their normal tax bill is reduced by $540) if they contribute $3,000 for a non working or low income spouse. (The more the receiving spouse earns, or the lower the contribution, the lower the offset.)
So spouse contributions definitely have their place. If you want contributions to be treated as spouse contributions, make sure you tell your super fund to do so.
The second sharing opportunity for couples is often more useful – contribution splitting.
With this one, the contribution is made for one member of a couple who then “gives” some of it to their spouse. In the background, it is initially paid into the contributing spouse’s super account but then transferred across to the receiving spouse’s account later. This is quite different to spouse contributions where the contribution is made directly to the receiving spouse’s super account in the first place.
It may seem cumbersome but contribution splitting is extremely useful because it allows couples to share the other type of contributions - “concessional contributions”. These are contributions made by an employer or where the contributing spouse has claimed a personal tax deduction for contributions they made from their own money.
A typical situation where contribution splitting is very useful is when one member of the couple earns much more income (and pays more tax) than the other.
Let’s say Chris (the contributing spouse) pays tax at the highest rate and could really do with maximizing his concessional contributions to reduce his tax. He asks his employer to contribute as much as possible (currently $27,500 pa) as a combination of compulsory super and salary sacrifice contributions for him. His fund will pay tax at 15% on these contributions ($4,125) but some or all of the rest ($23,375) can be split to his spouse Kay and moved across to her account. If Kay isn’t working at the moment, this is one way of making sure her account keeps growing.
Only concessional contributions can be split in this way – couples that want to share non-concessional contributions should use the spouse contribution route.
And there are some extra rules.
This time the contributing spouse’s age is important – they have to be eligible for the contribution to be made in the first place (for example, under 67 or between 67 and 75 but meet the additional work related tests). There are also requirements for the receiving spouse – at the very least they must be less than 65 years old. Even if they’re under 65 but have already reached the age where they can have limited access to their super (known as their “preservation age” – for most people these days it’s 60 or slightly younger) they can’t be retired at the time of the contribution split.
Contribution splitting also isn’t immediate. Generally you can’t split contributions to your spouse in the year you make them – you have to wait until the start of the next financial year. The one time the contributing spouse can split early is if they are moving their super from one fund to another – then they can split contributions made for the year so far before they move. In fact, if they don’t, the new fund won’t be able to do the split for them.
It’s clear that these rules might be useful for people like Chris and Kay but what about other situations?
What if Chris and Kay were both high income earners and both wanted to salary sacrifice up to their $27,500 pa limit but Chris’ balance was much smaller than Kay’s? This time, Kay might split her concessional contributions to Chris to help him catch up. As a general rule, couples expecting to build up large super balances over time are better off if they retire with broadly similar balances.
Or what if Chris was only 40 but Kay was 60 (but not retired)? They might decide to boost Kay’s balance by splitting Chris’ concessional contributions to her so that they can access some super earlier.
Or what if instead they are expecting to be eligible for the age pension? Kay will reach age pension age first and at that point her super balance will be counted for the various means tests but Chris’ won’t. In that case, it might make more sense to split her concessional contributions to Chris so that her balance is smaller.
Or finally there are some rules that change once a person’s super balance reaches a particular level. Contribution splitting can be used by couples who want to maximise their concessional contributions but keep one of them below a key threshold. For example, the cap on non-concessional contributions is reduced to $nil for anyone who has more than $1.7 million in their super balance at the end of the previous financial year. If there is one member of the couple whose balance is way over this limit but their spouse is comfortably below it, they might use contribution splitting to make sure at least one of them can keep making non-concessional contributions for as long as possible by staying below this limit.
All in all, both spouse contributions and contribution splitting can be extremely effective in sharing super for couples.
This article was first published in the Australian Financial Review 17th February 2022.