SMSF Technical Education & Strategies

Concessional contributions for your spouse working in your business

For many business owners, a common tax minimisation strategy was to pay your spouse a small nominal wage, but then give them a maximum concessional superannuation contribution, which is tax deductible to the business and only attracts a maximum of 15% tax going into the super fund. Pretty simple, and very tax effective.

The main problem with this strategy however, is that any instance where the situation is "contrived" - that is, the spouse does not really do any work and it is just a tax avoidance strategy - you will be in trouble as it will not be allowable.

The situation was cleared up in 2005, with a tax determination (Ryan's case) that basically said that the key issues are whether or not the contributions are within the member's allowable limits, and whether of not the member is an employee helping to produce assessable income for the business, and not the commercial nature of the transaction.

Hence, the strategy is legitimate and allowable, but only where:

- the spouse is actually employed in the business and receives salary for the duties performed, and;

- the spouse holds a position in the business that is legitimate and is not contrived - that is, a non-related third party or person would need to be employed in that position if the spouse was not employed.

Example

Jim is 51 years of age and runs his own printing business. His wife Jane, who is 52, is employed in the business performing a range of duties, including admin and customer service. Jim pays Jane a salary of $6,000 per year, plus contributions to her SMSF account of $50,000 (the maximum allowable concessional contribution for her age).

These contributions are allowable because Jane is a legitimate employee of the business, and if she were not there, someone else would have to be hired to take her place. The contributions are within her maximum allowable concessional contributions. The commercial nature of the contributions is not relevant.