Home » Understanding Spouse Contribution and Contribution Splitting in Australia

Understanding Spouse Contribution and Contribution Splitting in Australia

Superannuation is one of the most critical investment vehicles for Australians planning for a comfortable retirement. One way to boost your retirement savings is by taking advantage of the spouse contribution and contribution splitting options. However, understanding how these options work can be challenging, especially with the ever-changing superannuation and tax laws in Australia. In this post, we’ll delve into the basics of what is spouse contribution and contribution splitting, including eligibility criteria and the benefits they offer.

Eligibility for Spouse Contribution

To make a spouse contribution, you need to have a spouse who is under 67 years, and they meet the work test. Additionally, you must have income that is less than the threshold set by the Australian government. The government has set the income threshold at $40,000 per annum for the financial year 2020 / 2021, and this will be adjusted based on the Consumer Price Index.

Benefits of Making Spouse Contributions

One significant benefit of making spouse contributions is that you can claim a tax offset of up to $540 per year when you make contributions to your spouse’s super account. This can be a straightforward way to offset any tax payable or to reduce your tax liability. It is crucial to note that the offset amount depends on your spouse’s income, their eligibility, and the amount of the contribution made.

What is Contribution Splitting?

Contribution splitting refers to splitting your super contributions with your spouse’s super account. This strategy can allow couples to achieve an equal balance of superannuation and maximise their total super savings. It is essential to note that you can only split contributions made into your account, not the earnings or the previous balance from your account.

Benefits of Contribution Splitting

Contribution splitting provides several benefits, including dividing your retirement savings equally, potentially increasing the amount each spouse receives as a pension or lump sum, and it can ensure that each partner can access their super pension earlier if desired.

Splitting contributions to your spouse can also help you reach the $1.6 million superannuation transfer balance cap, which limits the amount of money transferred to your pension account.

Talking about Finances as a Couple

Discussing finances with your partner can put a strain on the relationship, but it is an essential conversation to have. It is vital to ensure that everything is on the table, including your income, assets, debts, and superannuation. Open and honest communication will help you understand how best to leverage each other’s financial strengths to work towards your joint goals. Come up with a plan that suits both of you and stick to it.

In summary, spouse contribution and contribution splitting can help you maximise your super savings, reduce tax liabilities, and achieve your retirement goals. However, before you dive in, it’s essential to understand the eligibility criteria, the benefits, and how these strategies align with your financial goals. Additionally, open communication with your partner about finances is crucial when considering these options. By working together, you can leverage each other’s financial strengths to achieve your joint financial goals.