As a federal election looms, we hear yet again the constant murmuring of proposed changes to the super system. One of the best strategies against any possible changes involving thresholds might be super splitting.
Consideration should be given to contributing to the super account of a spouse who has the lower balance, as any rule changes will have less impact because there are two accounts. Super splitting may also assist families to maximise the benefits available in super and provide an avenue for spouses to share in super benefits. It will be of particular benefit to low income or non-working spouses by allowing them to control their super and have their own income in retirement.
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You can split super contributions if you are a member of an accumulation fund, a Retirement Savings Account (RSA) holder, or a member of a defined benefit style superannuation fund where the individual holds an accumulation interest.
It’s important to note that a member can apply to split contributions regardless of their age, but their spouse, to whom the member transfers the contributions, must be either less than 55 years old or 55 to 64 years old and not retired.
Don’t forget that the definition of a spouse is quite extensive and includes not only a person who the member is legally married to but also a person who the member is in a relationship with who is registered under certain state or territory laws (including registered same-same relationships) and a person, of the same or of a different sex, who lives with the member on a genuine domestic basis in a relationship as a couple.
Which super contributions can be split?
Untaxed splittable contributions and taxed splittable contributions made to a superannuation fund or RSA on, or after, January 1, 2006 may be split to the spouse’s superannuation account.
Taxed splittable contributions include: taxable contributions such as employer contributions, super guarantee and salary sacrifice contributions; and allocated surplus contribution amounts that meet an employer’s contribution obligations.
Untaxed splittable contributions include: contributions made by a member or another person to a regulated superannuation fund when the contributions are not taxable, such as personal contributions or spouse contributions made on or before 5 April 2007.
The maximum amount depends on whether it is taxed or untaxed. For taxed splittable contributions, the maximum amount is the lesser of 85% of the concessional contributions for that year, or the concessional contributions cap for that financial year. Untaxed splittable contributions have a maximum amount of 100% of the amount of the untaxed splittable contributions made in the financial year
A member of a regulated superannuation fund may make an application to split an amount of either or both taxed splittable contributions or untaxed splittable contributions made on or after 1 January 2006.
The application must be either:
- made in the following financial year (i.e. application must be made between 1 July following the end of the financial year in which the contributions were made and the following 30 June); or
- made during the financial year if the entire benefit is to be rolled over or transferred in that financial year.
What are the benefits?
The outcome can deliver a significant tax advantage to the couple. This is because the contribution split will generate a ‘contributions-splitting super benefit’, which is a 100% taxable component when it is withdrawn for the originating spouse’s account. An eligible termination payment (ETP) must be created to allow contributions to be split and rolled over from one member’s account to the spouse’s account. This is called a contributions splitting ETP.
Super splitting may assist families to maximise the benefits available in super and provide an avenue for spouses to share in super benefits. Remember that it may be of particular benefit to low or non-working spouses by allowing them to control their own super and have their own income in retirement while also providing a benefit against any legislative risk.
It is recommended that specific advice on the benefits that it may provide be sought if super splitting is to be considered.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.