Building super together: Spouse contributions

When it comes to retirement, ASFA estimates that the lump sum savings needed to support a comfortable lifestyle in retirement is $640,000 for a couple. Please note: This assumes a partial Age Pension entitlement.

While this can be a helpful guide, its relevance to you will depend on your own ideas and expectations around retirement. Namely, what is your own vision of a comfortable lifestyle in retirement?

With this in mind, as referenced in our recent article, Indexation of contributions caps, in terms of building and holding lump sum savings as a couple, super is one of the most tax-effective investment structures available.

However, if your spouse is a low-income earner or taking time off work for study or caring responsibilities, then they may be accumulating little to no super savings. This can have flow-on effects for you both later on.

As an example, if the majority of your lump sum savings is held in one super account (as opposed to evenly spread between the both of you), you may be limiting your potential amount of combined tax-free income in retirement.

For context, income and capital gains from the assets supporting a retirement phase super income stream are generally tax-exempt. Though, there is a limit to these tax concessions—the transfer balance cap. 

The TBC limits the amount of super benefits that can be transferred to retirement phase. The general TBC is currently $1.6 million per person for the 2020-21 financial year, which can equate to $3.2 million as a couple.

Importantly, to address this, there may be the option to make contributions to your spouse’s super. This can be an effective way to build your combined super savings together in a tax-efficient manner, now and in the future.

Spouse contributions

Spouse contribution tax offset

If you make a non-concessional contribution to your spouse’s super, you may be eligible for the spouse contribution tax offset. In general, eligibility for the tax offset centres on your spouse meeting certain criteria:

• Your spouse must not have excess non-concessional contributions for the financial year.
• Your spouse must not have a total super balance that equals or exceeds the general transfer balance cap as at 30 June of the prior financial year.
• Your spouse must be under 75 years old when the contribution is made. Please note: If your spouse is aged 67–74, they must either satisfy the work test or be eligible for the work test exemption.

In addition to this, the amount of tax offset that you may be entitled to depends on the amount of your contribution and your spouse’s income. Please see the below table for further details.

*The tax offset is 18% of the lesser of: $3,000 reduced by $1 per $1 of your spouse’s income above $37,000; or, your contribution. Your spouse’s income is their assessable income plus reportable fringe benefits and reportable employer super contributions.

Spouse contribution splitting

Another way to build your spouse’s super is by splitting your concessional contributions from the prior financial year with them. The maximum amount that you can split with your spouse is the lesser of:

• 85%* of your concessional contributions made in the financial year; or
• Your concessional contributions cap for the financial year, including any unused concessional contribution cap carried forward from previous financial years.

*The additional 15% represents the contributions tax withheld by the super fund when it received your concessional contributions.

Please note: The amount split doesn’t count towards either the concessional contributions cap or non-concessional contributions cap of your spouse. Instead, it continues to count towards your contribution caps.

In addition to the above, to be eligible to receive this contribution split, your spouse must not be aged 65 years or more, or aged between their preservation age (see the table below) and 65 and eligible to access their super funds due to retirement.

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