Super Contribution Splitting
Superannuation contribution splitting means that you can split some superannuation contributions made in the previous financial year to your spouse’s superannuation account. It is a way for your spouse to accumulate their own superannuation, even if they have a low income or they are not working. Splitting your superannuation contributions will give you and your spouse more choices in how to prepare for your retirement.
HOW DOES IT WORK?
You can split contributions with your partner if you are married, or in a de facto relationship, as long as your partner is under 55, or between 55 and 65 and not yet retired.
Up to 85% of concessional superannuation contributions (e.g. superannuation guarantee contributions (SGC), salary sacrifice and contributions made by you for which you have claimed a tax deduction), made during one financial year can be split between you and your partner the following financial year.
Existing account balances and non-concessional contributions cannot be split. You are also not able to split more than the concessional contribution cap. The concessional contribution cap will apply for the spouse who is initially making the contribution. The amount split will not count towards the receiving spouse’s contribution caps.
For more information regarding the cap limits, please refer to the ‘Superannuation Contributions’ fact sheet under the Superannuation Financial Education Series
Superannuation contribution splitting is voluntary, which means that superannuation funds can decide whether or not they will offer contribution splitting to their members. Some superannuation funds will only allow contribution splitting if the spouse sets up a separate account in the same superannuation fund. In other words they won’t allow the money to be transferred to a different superannuation fund.
WHAT ARE THE BENEFITS OF CONTRIBUTION SPLITTING?
If you or your partner have met a condition of release to access your superannuation benefit and decide to take a lump sum benefit between the ages of 55 and 60, both of you will have access to a lifetime limit. As of 1 July 2015 the lifetime limit (tax-free amount) increased to $195,000 (from $185,000), however it should be noted that this cap is reduced by any amount previously accessed. This means you can effectively withdraw up to $390,000 tax-free before you both turn 60.
If you choose to split to an older spouse they will have access to tax-free income payments or lump sum withdrawals earlier than if the contributions were not split, as they will reach age 60 sooner than the younger spouse.
You can use contribution splitting to pay personal insurance premiums through super, which is particularly helpful if cash is tight. This means both you and your partner may be able to afford the right level of cover.
Superannuation funds are not counted under the Centrelink Means tests for people under Age Pension age. If you are older than your partner and you split your contributions to your younger spouse, superannuation assets held by your younger partner will be ignored, potentially enabling you to qualify for more Centrelink benefits once you reach Age Pension age.
Note: Superannuation contribution splitting is voluntary; you will need to check with your superannuation fund if they offer the strategy.
Bill, aged 34 has $100,000 in super, and has total employer contributions (including salary sacrifice) of
$20,000 made into his superannuation account each year. His wife Jean is not working, as she is raising their 2 children.
Bill and Jean visit their financial adviser as they are concerned about having no Life or TPD insurance on Jean. Bill has insurances through his superannuation fund. Their financial adviser suggests that they split $17,000 ($20,000 x 85%) of Bill’s super contributions into Jean’s superannuation account at the end of the financial year. This $17,000 will fund the cost of retaining Life and TPD insurance for Jean for at least the next 10 years. This allows the family to adequately insure Jean without having to use their existing cash flow.
For a confidential discussion about your superannuation, please contact us on 03 9935 5233 to set an appointment at our Little Collins Street office in Melbourne CBD.