The $540 Tax Break Most Australian Couples Don't Know About

If you or your spouse earns less than $40,000 a year, you could be missing out on a $540 tax break that many couples don’t even know exists.

This government incentive is called the spouse contribution strategy, and it's a powerful tool for boosting your retirement savings while providing an immediate tax benefit. It's perfect for couples where one partner is a stay-at-home parent, works part-time, or is a low-income earner.

This guide will break down what it is, how it works, why it's so beneficial, and how to avoid common mistakes.

Disclaimer: This information is for educational purposes only and is not financial advice. Superannuation and tax rules are complex. Please seek professional advice before making any financial decisions.

How the Spouse Contribution Strategy Works

The spouse contribution strategy is a government incentive designed to help couples boost their retirement savings together. You can find the full eligibility criteria on the ATO website.

Here’s the simple breakdown:

• To get the full $540 tax offset: The receiving spouse must have an income of $37,000 or less, and the higher-earning spouse must contribute at least $3,000 of their after-tax money into their partner's super account.
• If the receiving spouse earns between $37,000 and $40,000: The tax offset gradually reduces.
• If the receiving spouse earns more than $40,000: The tax offset no longer applies, but the contribution can still be a great way to help grow their super.

In every eligible scenario, it's a win-win: the receiving spouse's super balance grows, and the contributing spouse pays less tax.

A Real-Life Example: Meet Tom and Sarah

Let's look at a married couple, Tom and Sarah, who are planning for their financial future.

• Tom's Income: $200,000 per year.
• Sarah's Income: $30,000 per year from part-time work.

Scenario 1: Full Tax Offset

Tom sees an opportunity to reduce his tax bill while boosting Sarah’s super. He decides to contribute $3,000 of his after-tax money to her super fund.

Because Sarah’s income is below the $37,000 threshold, Tom is eligible to claim the full 18% tax offset, which is $540.

The Result: Tom effectively pays only $2,460 to add $3,000 to Sarah's super, thanks to the tax offset he receives on his tax return.

Scenario 2: Partial Tax Offset

What if Sarah earns a little more, say $38,000?

• In this case, the tax offset is calculated on a lower amount. The formula is based on $3,000 minus the amount Sarah earns over $37,000.
• The tax offset applies to the first $2,000 of Tom's contribution ($3,000 - $1,000).
• The offset is calculated as 18% of $2,000, which equals $360.

If Tom contributes $2,000 instead of $3,000, he still gets the same $360 tax benefit.

3 Powerful Reasons to Use This Strategy

1. Get an Instant 18% Return

If your spouse qualifies for the full offset, you are getting an instant 18% return on your investment into your joint future. No savings account or investment today is offering a guaranteed, risk-free return of 18%.

2. Close the Superannuation Gap

One of the biggest issues in superannuation today is that women and lower-income earners often retire with significantly less super than their partners. This is often because they take time off to raise children, work part-time, or earn less due to industry pay gaps.

By making a spouse contribution, you are actively helping to close that gap. This goes beyond just sharing; it's about future-proofing your finances as a team. With ongoing discussions about potential new taxes and caps on high super balances, having more evenly balanced super accounts is a smart long-term strategy.

3. Harness the Power of Compounding

The earlier you start, the bigger the impact. Super is invested, and the earlier you contribute, the longer that money has to compound and grow.

Even if your partner is 30 years away from retirement, a single $3,000 spouse contribution could grow to more than $22,000 by the time they retire, assuming a 7% average annual return. Imagine if you did this for multiple years—that could mean an extra six figures in retirement savings.

Common Mistakes to Avoid

This strategy is great, but only if done correctly. Here are some common mistakes and how to avoid them.

• Miscalculating the Income: The income limit isn't just salary. The ATO's formula includes assessable income, reportable fringe benefits, and reportable employer super contributions. Make sure you are using the correct figure.
• Forgetting the Contribution Cap: A spouse contribution counts as a non-concessional (after-tax) contribution for the receiving spouse. Ensure this doesn't push them over their annual non-concessional cap.
• Ignoring the Total Super Balance Limit: The receiving spouse's total super balance must have been under $1.9 million as of 30th June 2024 to be eligible for spouse contributions in FY25.
• Not Checking the Age Requirement: While there are no work requirements, the receiving spouse must be under 75 at the time of the contribution.
• Using the Wrong Money: Only after-tax, non-concessional contributions qualify. Make sure no one has claimed the contribution as a tax deduction.