Finance Your Budget Ask the Expert: Building up your partner’s super and moving back in with your kids

Ask the Expert: Building up your partner’s super and moving back in with your kids

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Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question 1: Can I transfer funds from my superannuation account to my wife’s superannuation account? If that is possible, are there any tax implications?

You cannot ‘transfer’ or ‘rollover’ funds to anyone else’s super account, but you can ‘split’ some of your contributions or potentially cash out some of your super and recontribute the proceeds to your spouse’s.

Let’s have a look at the options.

1. Super contribution splitting

This allows you to transfer ‘concessional contributions’ made during a financial year to your spouse’s super account. Concessional contributions generally comprise your employer SG contributions, salary sacrifice contributions, or personal contributions for which you have claimed a tax deduction.

You cannot split contributions to a member’s spouse age 65 or over.

The maximum that can be split each year is the lesser of:

  • 85 per cent of your concessional contributions for that financial year (15 per cent is charged as contributions tax)
  • The concessional cap for that financial year (for 2020-21, this is $25,000, and for 2021-22, this is $27,500).

Most but not all funds offer contribution splitting. They impose strict timeframes so you will need to contact your super fund for more details.

2. Cash out and recontribute to super

If you have any benefits in your super that can be accessed – they are called ‘unrestricted non-preserved’ benefits – these can be cashed out and recontributed to your spouse’s super.

But there are contribution eligibility requirements and caps on the amount that can be re-contributed.

Often this strategy can only be applied once you are close to retirement. Please refer to a recent article where I covered this in detail.

3. New contributions

If the above options cannot be applied or are irrelevant, then simply making new contributions to your spouse’s super will help them build up their super.

In particular, you can make a spouse contribution to super. This involves making after-tax contributions to your wife’s super fund.

Additionally, if you make a spouse contribution, you may be able to claim a tax offset if your spouse is earning less than $40,000.

The maximum offset of $540 is applied if you make a spouse contribution of at least $3000 and your spouse earns less than $37,000 for that financial year.

Question 2: Do you pay income tax if you are on a defined pension, also [receive] a part government pension, and have money in a bank account?

Whether you pay income tax will be dependent on your overall level of taxable income.

Some people don’t realise that the age pension is taxable. But if that is your only source of income then no tax is payable.

With your defined pension income, the taxable amount will be based on your age and the components within the pension.

If you have any ‘untaxed’ component, this will always be taxable but from age 60 you receive a 10 per cent tax offset on this amount.

Any taxable component is taxable only if under age 60, and the tax-free component is always tax-free regardless of age.

Any interest earned from bank accounts is also taxable income.

So, although the ‘nominal’ tax-free threshold is $18,200 (as of July 1), the effective tax-free threshold, when you take into account the low income tax offset, the low and middle income tax offset and the Senior Australian Pension Tax Offset (SAPTO) is:

  • $23,226 for younger Australians
  • $33,898 for single senior Australians eligible for SAPTO (including age pensioners)
  • $30,592 each for senior Australians that are a member of a couple and eligible for SAPTO (including age pensioners).

You will only end up paying income tax if you receive taxable income above these ‘effective’ tax-free amounts.

If you are unsure of the taxable components of your defined benefit pension, contact your fund and they can provide a breakdown for you.

Question 3: Single-aged pensioner selling property for $240,000. Savings of $15,000. Helping me (her daughter) by paying outstanding amount on my home (as she now lives with me) of $170,000 when she finally sells. Will this affect her pension?

It could potentially affect her pension as the $170,000 could be considered a gift by Centrelink and fall under the deprivation rules.

Under these rules, any amounts gifted over $10,000 over one year, or $30,000 over a five-year period, would still be counted by Centrelink for five years.

So, in this instance, $160,000 would be counted as an asset and subject to ‘deeming’.

However, as outlined by your question, if the pensioner only has $15,000 in a bank account and about another $70,000 from the net sale proceeds, then the $160,000 would still leave them under the asset test threshold of $482,500 (June 2021), below which pensioners receive the full age pension. And deeming on this amount would also not affect the pension.

You could also consider providing the pensioner a granny flat interest in your property, which provides them a right to live in the property, without having any ownership in the property.

This may provide an opportunity for the Centrelink deprivation rules to not apply. However, this is a complex issue that would require legal advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings