Spouse splitting may create opportunities to effectively transfer a portion of one spouse’s superannuation balance to the other spouse’s superannuation. Super contributions splitting generally allows one spouse to split up to 85% of concessional contributions with the other.

Here’s how it works:

  1. The contribution must be contributed to the first spouse’s superannuation fund (15% contributions tax will be paid in the first spouse’s super fund).
  2. In the financial year following the contribution, the first spouse requests the contribution split (ensuring that if the member intends to claim a deduction on the contribution that a ‘Notice of Intent to claim a deduction’ is lodged with the super fund first). Note that where rollovers or withdrawals occur during the year of contribution, a splitting request may be made at that time.
  3. The super fund will roll the amount over to the receiving spouse’s superannuation fund.
  4. The full contribution amount will still apply against the first member’s contribution cap (the one who makes the splitting election), not the receiving spouse’s contribution cap.

Note: for a couple to be eligible to split concessional contributions, the spouse that eventually receives the split contributions must be younger than 55, or 55 to 64 years old and not retired.

Also Note: for splitting elections to be accepted in an SMSF, the trust deed must allow contributions splitting.

What are the potential benefits?

  1. For a couple with an age gap sufficient enough that the older spouse will receive Age Pension benefits much earlier than the younger spouse, the older spouse may elect to split contributions to the younger spouse’s superannuation balance, thereby maximising the Age Pension income in doing so. This is because Centrelink considers the couple’s total income and assets when determining Age Pension eligibility even just for the one spouse. Where the younger spouse is below age pension age, their superannuation balance is exempt from those tests.
  2. Conversely, for a couple with a sufficient age gap, it may be desirable to maximise the superannuation balance of the older spouse so as to meet a condition of release sooner with more of the couple’s total superannuation funds. This may enable further planning opportunities (such as the re-contribution strategy) after withdrawing a greater amount from super.
  3. Finally, both members of a couple may meet a condition of release after preservation age (55 years if born before 30 June 1960). For planning or other reasons, it can be beneficial to withdraw as much superannuation as possible before turning 60 (even though after age 60 such withdrawals are generally tax-free). The low rate cap assists here to ensure that the taxable component of a lump sum withdrawal is tax-free up to $185,000 per person (the tax-free component is not taxed on withdrawal). Contributions splitting can be used prior to such withdrawals so that each spouse has a superannuation balance that will enable them to maximise use of the low rate cap. Overall the couple is able to withdraw as much superannuation as possible in that timeframe without paying tax on the withdrawals.

 

Considerations before making a splitting election:

–          Are there any additional fees in either super fund for doing so?

–          Are there better earnings on investments in the first spouse’s super fund?

–          Anyone earning more than $300,000 now pays 30% tax on concessional contributions, this presumably means that only 70% of contributions may be split. The jury is still out on super funds administering this.

–          Contributions made to defined benefit funds cannot be split.

 

The information in this document is factual information only and is not intended to be financial product advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances.  While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Star Super Services Pty Ltd and Star Super Advice Pty Ltd is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.