The new rules relating to the spouse super contribution scheme make it far more useful to many more people. Now the low-income spouse can have much more income and the higher income spouse contributing for them will receive the full tax rebate available.
The ATO will pay a $540 rebate to anyone who puts $3,000 into super for their spouse whose taxable income is below $37,000 per annum. A partial rebate will be paid if the spouse’s income is up to $40,000 per year. The spouse income limit used to be $10,800 for a full benefit and $13,800 for part.
The rebate is 18 per cent of the amount contributed up to $3,000. Of course the ATO will also now allow tax deductions for personal super contributions by anyone under age 65, and up to 75 if still working, including employees, as discussed last week.
Those have a limit of $25,000 per year which includes employer super guarantee contributions. Personal deductible contributions will save the person varying amounts of tax. Depending on their tax bracket they will save six per cent, 19.5, 24 or 32 per cent of each dollar contributed.
There is also the Government co-contribution scheme. People whose income is below $36,813 per annum who put $1,000 into their own super without a tax deduction receive a $500 government contribution to their fund. That’s a 50 per cent benefit, the highest rate of all.
So if a couple has savings at the bank that they could put into super it will be quite a puzzle to work out which type of contribution will be best to make, by whom, and what amount. Their circumstances especially their taxable incomes will be a key factor.
If one or both spouse’s incomes are below $36,813 the best benefit will come from a $1,000 personal contribution to earn the 50 per cent benefit so that should be the priority. No contribution tax is applied to this. The personal deductible contribution will also be attractive to many.
This is especially so for those in medium and higher tax brackets where they will save 19.5, 24 or 32 per cent (their tax rate minus the 15 per cent tax on the contribution). The high earners should consider contributing up to the $25,000 per person limit.
However if they have already put in the $25,000 using salary sacrifice the next best option is the spouse contribution to save 18 per cent, if their spouse meets the income test. It will also be the best option for couples who are both in the bottom tax bracket.
Adding to super now will raise our living standards in retirement. Now is the time to get advice as to which type of super contribution will give us the best benefit.