The 2023-24 Federal Budget has cemented the much-discussed additional tax on superannuation balances over $3 million. From 1 July 2025, approximately 70,000 superannuation fund accounts will be hit with an additional 15% tax on their super, bringing the tax rate up to 30%. While you may be thinking that this won’t apply to you, the $3 million threshold is not indexed which means more and more Australians will be impacted over time. Here, we have compiled a list of strategies to redirect your super and rebalance with your partner that will set you up to mitigate the impact of this change, and possible gain some extra tax savings as well.
First, let’s talk about tax-free retirement income!
From the age of 60, you can start a tax-free pension with up to $1.7 million of your superannuation money (this is called the transfer balance cap). The income from the pension, as well as the investment earnings, will be entirely tax-free. So, even before the new $3 million cap, it may be worthwhile to redirect your superannuation and make contributions to the partner with the lower balance so you can best utilise this tax-free threshold.
Boost your spouse’s super and get a tax-deduction
If Partner A is on a higher tax bracket, they can make additional super contributions into their own account and split it with Partner B. This will produce a more favourable tax outcome than Partner B making the same contribution to their account. For example, if Partner A is on $150,000 (MTR* 39%^) and Partner B is on 90,000 (MTR 34.5%^), Partner A can make a $10,000 contribution into their own super account and split 85% of this in the following financial year (15% is tax on the contribution). The $10,000 can be claimed as a tax deduction in the current financial year which equates to $3,900 ($10,000 x 39%). If Partner B were to contribute the same $10,000 into their own super account, the resultant tax deduction would only be $3,450 ($10,000 x 34.5%).
*MRT= Marginal Tax Rate
^Including Medicare Levy
Split your super with your partner
You can split up to 85% of concessional contributions, such as the compulsory employer contributions, paid to your super account in the previous financial year with your partner. For those over the age of 60, the spouse with the higher superannuation balance can withdraw a lump sum and contribute this into the super account of the spouse with the lower balance, up to a maximum of $330,000 every three years. The receiving spouse must be under age 75 and have a super balance of less than $1.7 million.
Downsizing to supplement your retirement income?
If you are planning on downsizing and using part of the proceeds to help fund your retirement, a Downsizer Contribution allows each member of a couple to contribute up to $300,000 into their super account. You need to be over age 55 and the property needs to meet certain criteria such as being owned by you or your spouse for at least 10 years and it must be at least partially exempt from CGT. For those wishing to contribute less than the maximum allowed amount, you can simply prioritise contributing to the spouse with the lower super balance.
Contribute to a low-income spouse’s super for a tax offset
If your spouse earns less than $37,000, you can make a contribution of up to $3,000 to their super account and receive a tax offset of $540. The tax offset phases out when your spouse’s income reaches $40,000. This offset will go directly towards reducing the amount of tax that you pay. This can be a useful strategy for a non-working spouse, or someone who is on maternity leave and earning a lower income.
Low-income spouses can enjoy up to $500 from the government
For those who earn less than $57,016 and more than 10 percent of your income is from employment, you can receive up to $500 government super co-contribution when you make an after-tax contribution of up to $1,000.
The latest proposed superannuation change is a good reminder that our superannuation system will likely continue to change into the future. At Financial Spectrum, we believe in taking a proactive approach and putting strategies in place to help you mitigate the impact of these changes, both now and into the future. We highly recommend you seek the services of a good, qualified accountant who will take the time to understand your personal situation and give you strategic tax advice to minimise your tax obligations in the future.
* All thresholds are current as of FY2023. Please consult your financial adviser for more detail.
Jessy believes in delivering genuine value to clients through unbiased, holistic advice that is free from commissions and conflicts. Having been a Financial Spectrum client herself, Jessy has a great handle on client needs and delivers a standout service. She is passionate about making a positive difference in people’s lives – just like Financial Spectrum has done for her family. Read her full bio here.