FROM 1 July 2017, the Government will increase the current spouse tax offset upper income threshold from $13,800 to $40,000 to help more couples support each other in saving for retirement.
This will benefit eligible low-income earners and people with interrupted work patterns.
The current superannuation system offers little flexibility for those who take time out of work, work part time, or have “lumpy” income and therefore have periods in which they make no or limited contributions to superannuation.
Many Australian workers, especially women, take time out of the workforce to raise children or care for a relative. Many return to work part-time and this contributes to women having lower superannuation balances. The average superannuation balance for a woman is around 74 per cent of the average superannuation balance for a man.
Although women are more likely to have interrupted work patterns, they also have a longer life expectancy than men and need higher superannuation balances to support a longer retirement.
From 1 July 2017, the current 18 per cent tax offset of up to $540 will be available for any individual, whether married or de facto, contributing to an eligible recipient spouse whose income is up to $37,000. This is an increase from the current $10,800.
As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.
No tax offset will be available when the spouse receiving the contribution has exceeded their non-concessional contributions cap or their balance is $1.6 million or more.
As is currently the case, the spouse receiving the contribution must be under 70-years-of-age and meet a work test (being gainfully employed for at least 40-hours over no more than 30 consecutive days in the financial year) if aged 65 to 69-years.
If you make contributions to a complying superannuation fund or a retirement savings account (RSA) on behalf of your spouse (married or de facto) who is earning a low income or not working, you may also be able to claim a tax offset.
Here is an example* of how the changes will impact an Australian couple:
Mary earns $37,500 per year. Her husband Tony wishes to make a superannuation contribution on Mary’s behalf.
Under the current arrangements, Tony would not be eligible for a tax offset, as Mary’s income is too high. However, under the new arrangements, Tony would be eligible to receive a tax offset. As Mary earns more than $37,000 per year, Tony will not receive the maximum tax offset of $540. Instead, the offset is calculated as 18 per cent of the lesser of:
$3,000 reduced by every dollar over $37,000 that Mary earns, or the value of spouse contributions.
For example, Tony makes $3,000 of contributions and Mary earns $500 over the $37,000 threshold. Tony receives a tax offset of $450: 18 per cent of $2,500, as this is less than the value of the spouse contributions ($3,000). If Mary were to earn more than $40,000 there would be no tax offset.
For more information, call Adam Douglas at MyState Wealth Management on 1300 651 600 or visit www.mystate.com.au/wealth.
Information is current as at 13 April 2017. We recommend you seek independent tax advice. This is general advice only, before making any decisions please speak with a MyState Wealth Management Financial Planner. *Source: Australian Government.