Join our investing community

taxation on Super contributions from spouses non-taxable income?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by CJ. Wentworth, 21st Oct, 2008.

  1. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    I wasn't exactly sure how to title the thread, so I hope that one is relevant :).


    My question is based on the treatment of contributions made from a tax-free source.

    Basically a married couple separated by a few years. Jack has reached the age of 60 and can access his superannuation in tax-free lump sums. Jill is 55.

    If the Jack withdraws a lump sum of $100,000 and contributes it to Jill's superannuation, how will this contribution be treated? Is it a concessional contribution, or non-concessional... is Jack even allowed to do this?

    *feeling really dopey at the moment >.>*
     
  2. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi CJ,

    Is this to do with an assignment?
    It seems rather vague (as most assignment questions are).

    Does Jack want to give Jill his money???...maybe he is feeling "Jill"-ted...Boom-tish

    Ok, you've said that Jack can access his superannuation in lumpsums, this means that he has met a superannuation Condition of Release and either resigned from an employer who was contributing to superannuation on his behalf (at age 60) or permanently retired from the work force (at age 55 or over).

    The next part is making sure contribution are within contribution caps. Non-concessional limits are $150k per annum (and using bring-forward $450k while under age 65). Concessional limits are $50k per annum, transitional rules kick in if over 50 until 30th June 2012 which is $100k per annum. No issues there...

    The main deciding factor on whether Jill's contribution should be concessional or non-concessional would be based around her working situation and salary.

    If she is self-employed and in a 30% tax bracket, you may look at making concessional contributions to reduce her taxable income.

    If she is not self-employed (whether employed or not), you may look at making non-concessional contributions to super to start a tax-free allocated pension (TTR or standard allocated pension).

    So it mainly revolves around Jill's working situation...

    Cheers,

    Dan

    PS If she isn't working make Jack can get a tax offset of $540 (18% of $3000).
     
  3. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    Hi Dan, yeah this does have to do with the ELC assignment. Kind of a question based on Young Gun's previous reply in this post http://www.invested.com.au/106/im-stumped-35095/index2.html, and in particular his suggestion


    I'm sorry I'm totally lost here for some reason. Basically the guys will have the choice when making the contribution to deem it as concessional or non-concessional. How would they make it a concessional contribution, would Jack simply transfer the money into Jill's super? Does it not matter that the source of the contribution is tax-free money? (also what if she's not self-employed?)

    I must've also misunderstood something earlier. I thought that because Jack was 60 he was entitled to his superannuation, not through TTR but as lump sum withdrawals, regardless of whether he's working or not. How can Jack access his super while still employed?

    edit: fail~! lol. my mistake, re-reading the subject he has access to TTR until 65.


    I'm sorry for the barrage of questions lol, I guess I've just totally missed the point of things so far >.>
     
    Last edited by a moderator: 22nd Oct, 2008
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi CJ,

    It was the standard "vagueness" of assignment scenario's which gave it away ;) Unfortunately there is always a gap between reality and assignment questions...

    Young Gun has suggested that a client age 65 contributes funds into a spouse's superannuation to reduce their Assets Test amount for Age Pension. Didn't you say Jack was 60? Read up on Conditions of Release (Self managed superannuation funds - payment of benefits)

    I'm not surprised your lost, the question scenario is vague...The superannuant will have the choice. Though if she is not retired or self-employed, Jill will have to meet the 10% rule to claim the deductible contribution as a tax deduction (as your doing ELC you shouldn't know what I'm talking about, once you complete the super and tax subjects you'll understand more).

    When Jill posts a cheque off she can fill in a contribution form which will ask how much of the contribution is employer SGC, Concessional, Non-Concessional, Salary Sacrifice or Spouse Contributions.

    The the funds came from an employer (eg, SGC) it would be concessional as it would be taxed, if it comes from the member they should elect whether it is concessional (taxed at 15%) or non-concessional. If Jill is employed (eg, by Myers) she would have to meet the 10% rule to make a concessional contribution, if she can't then it would be strongly suggested to put it in non-concessionally and then start a TTR.

    If Jack is age 65 or over he has met a Condition of Release, if Jack is not age 65 he must meet another Condition of Release to withdraw lump sums from his superannuation fund. If Jack is employed and 60 he does not meet a Condition of Release (unless he resigns from his current employer who is making SGC for him).

    As I said before, the "vagueness" of assignment questions means you have to make alot of assumptions. Write them down in the assignment otherwise they don't know what your talking about, ironically, your supposed to be a mind reader but they are not...

    Cheers,

    Dan
     
  5. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    Hi Dan, thank you so much for your informative response. On my way to work today I felt like a fool after posting the question since Jack does not have access to lump sum withdrawals (and I knew that). He does however have access to a TTR which he could use funds to contribute to Jill's super. For some reason I thought TTR was only accessable until 60.

    I'm glad to see I was on the right track in trying to lower Jack's superannuation for the Assets test, however as you have stated that I'm probably not supposed to know too much particulars at this point, I'll give a basic outline in my answer. I do (think) understand the basic strategum, and in my naivatee will suggest that:

    Jack will take out a TTR, and draw the maximum 10% income from it as a tax free income. This will lower his Superannuation fund by the amount he chooses to start the TTR with, however the income is then directed to Jill's superannuation. Once Jack reaches 65 the Assets test will consider his superannuation as an asset and it will earn a 'deemed' income. Since Jill is not yet of pension age, they will effectively ignore her raised superannuation.

    Once Jill reaches pension age however they will lose access to the age pension (depending on the amount of super and other assets held)
     
  6. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi CJ,

    Your definitely on the right track.

    If Jill works and earns over $34k she should either salary sacrifice or make deductible contributions to do a standard TTR which will save tax.

    Cheers,

    Dan
     
  7. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    I am assuming this is not part of a payment split under Family Law ...

    As regards tax offsets for ex-hubby, s.995-1(1) ITAA97 definition of a "spouse" does not include permanently separated even if legally married.

    I don't have time to check SIS regs on whether the fund can accept directy from the ex-hubby, or whether he needs to give the money to the ex-wife to contribute herself - if eligible.

    I love these vague financial planning assignments - leave all the due dilligence responsibility in the small print.

    Cheers,

    Rob
     
  8. CJ. Wentworth

    CJ. Wentworth Well-Known Member

    Joined:
    9th Mar, 2008
    Posts:
    92
    Location:
    Cairns, QLD
    grrr, what am I doing wrong here.

    The Age Pension relies on 2 forms of means tests. Assets and Income. The test that defines the lower of the two is what is used to determine the pension payable.

    A home-owner couple can own up to $236,500 in assets before the pension is effected.
    The maximum they can earn is $232 per fortnight before the pension is effected.
    The couple Deeming Provisions are 3.5% of the first 65,400 and any excess is deemed at 5.5%


    Using these figures:

    5.5% of (236,500 - 65,400) + 3.5% of (65,400) = 9410.5 + 2289 = 11699
    11699 / 26 = 449 per fortnight which is greater than 232.



    am I misunderstanding the tables? In the case of Jack and Jill, as Jack reaches age pension first, am I supposed to treat him as a single pensioner when determining how much pension he can recieve?
     
  9. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi CJ,

    You'll find that the new rates are $68,200 deemed at 4% and over at 6%...
    Homeowner combined is $243,500

    You can also call CentreLink Telephone Us
    to find out more...

    Cheers,

    Dan