October 18, 2019
Many people don’t know that from 1 January 2006 it has been possible to split certain superannuation contributions with their spouse. At the end of each financial year, you can apply to the trustee of your super fund to split the previous year’s concessional contributions with your spouse. This is different from making a spouse superannuation contribution, as in this case you are just transferring your super into your spouse’s superannuation account – you are not making a contribution.
There may be different reasons for splitting superannuation contributions with your spouse, including:
- You can boost the super balance of the lesser-superannuated spouse
- This could allow you to plan better for your estate planning needs
- You may be able to utilise two low rate thresholds on the taxable component, which is relevant it you are planning to access your super prior to age 60
- For those with substantial superannuation savings, this could allow you to take advantage of the two Transfer Balance Caps, if one of you is likely to exceed the cap at some point in the future
- This may be an effective way of funding life insurance for a non-working or low-income earning spouse as you will effectively be purchasing the insurance using pre-tax dollars (less the 15% contributions tax)
- Where there is an age difference between the members of a couple:
- By splitting contributions towards the older spouse, you may be able access the superannuation benefits sooner
- By splitting contributions towards the younger spouse, you may be able to maximise your social security benefits, as superannuation benefits of a person who is under Age Pension age is exempt from Centrelink’s assessment
It must be noted that superannuation funds are not legally required to offer splitting. Also, defined benefit interests generally cannot be split. The rules of splitting are:
- Up to 85% of concessional contributions (e.g. Superannuation Guarantee, salary sacrifice and personal contributions for which a tax deduction has been claimed) can be split. The remaining 15% is retained to pay the contributions tax
- Non-concessional contributions cannot be split
- The receiving spouse must be aged less than 65 (and if between their preservation age and 65 be able to declare that they have not permanently retired from the work-force)
- The request will need to be made in writing to the trustee within 12 months following the end of the financial year
- You can only make one annual application to split the previous year’s concessional contributions
- You can split contributions in the current year only at the time of a full rollover to another fund
The amount transferred is treated as a type of rollover (i.e. not treated as a contribution) and will form part of the taxable component and be preserved in the recipient spouse’s name.
If you think that superannuation splitting is applicable to your circumstances, we will be happy to discuss this strategy with you. Just give is a call or drop us an email.