Tim Howard, advice strategy and technical specialist at BT Financial Group, said in a webinar late last year that there are lots of opportunities and strategies around splitting contributions between spouses and it’s up to advisers to determine which one is the most suitable for their individual clients.
During a Q&A session, Howard was asked whether a receiving spouse between the age of 60-65 years, who has never been employed, would be eligible for a contribution split?
“This is an extremely unusual case that you have someone who might have reached their preservation age, but not age 65 and has never worked ever,” Howard said.
“If that is the case, then they can’t actually meet the retirement definition under law until they hit age 65 so yes, they could receive a split if they’ve never worked because they can’t retire unless they’ve worked, and they’d have to wait till age 65 to actually access that split.”
Howard explained the strategy of spouse contribution tax offset is not contribution splitting but rather an alternate option for ways to benefit from making contributions between spouses.
“This is where you have a spouse who is on a low income or isn’t working at all. The definition of a low income is less than $40,000 of income in a particular year, and they’re under the age of 75 and your receiving spouse has non-concessional cap space, then you make a non-concessional contribution into their superannuation on their behalf,” he said.
“If you do that, then you might have, or you would be able to, receive a spouse contribution tax offset, which is a tax offset for the working spouse who made the NCC for the low income or the non working spouse.”
He continued there is a formula around this strategy and gave an example of a couple, Malcolm and Janet.
Malcolm is semi-retired, Janet is still working, and Malcolm will only earn $19,000 worth of income in the current financial year.
“Janet is going to make an NCC into Malcolm’s superannuation. If she made an NCC of $2,000 then she would be eligible to receive a spouse contribution tax offset to reduce the tax payable in her income tax notice of assessment effectively for the financial year of $360 so there is a tax saving for her, but only if she has got tax to pay,” Howard said.
“[Here’s another example] of Adam and Cara who are at an accumulation age. Kara’s working part-time, earning within the threshold of just over the $37,500 and Adam looks to make a $3,000 spouse NCC to Kara’s superannuation. Because she is earning between $37,000 and $40,000 there is a slight reduction on the amount of the tax offset that Adam would receive.”
He continued the explanation with a much higher income-earning spouse, Rebecca, who earns $180,000 a year. Her partner, Emily, is a teacher working part-time on $37,5000 and wants to work out from her free cash flow.
“Is it better for Rebecca to make a personal deductible contribution and claim a deduction for it, or is it better for Rebecca to make a NCC for Emily and get the spouse contribution tax offset?” Howard said.
“The value of the spouse contribution tax offset, with a lower income and earning spouse is going to be about $450 off Rebecca’s tax payable for the year. If Rebecca has concessional cap space, she’s going to be better off making a personal contribution and claiming a tax deduction for that first. She’d get a $720 tax deduction for a contribution into her own fund.”
He continued that if Rececca did a PDC first, or maximises a concessional cap, then she could look to split some of that PDC across to Emily.
