Amendments to superannuation legislation that took effect from 1st January 2006 saw the introduction of a system that allows a person to split their superannuation contributions with their spouse.
At the time, this presented significant opportunities, allowing couples to engage in effective tax planning in the lead up to retirement and to manage Reasonable Benefit Limits as superannuation entitlements grew in value. With the introduction of significant superannuation reform from 1st July 2007 which saw the abolition of Reasonable Benefit Limits, and the removal of tax on superannuation benefits received by people once they reach the age of 60, the concept of superannuation contribution splitting seems to have fallen from the radar.
Despite this, superannuation contribution splitting remains a valid planning strategy for many people. In this article we will revisit the rules governing superannuation contribution splitting.
Contribution splitting involves a person requesting their superannuation fund to transfer contributions made to their superannuation account (both tax deductible and non-deductible contributions). This is not to be confused with making contributions for a spouse directly to their superannuation fund.
Up to 85% of concessional contributions may be split with an eligible spouse.
The process of initiating a contribution split involves the member lodging a request with their superannuation fund. Whilst many superannuation funds have their own forms, the Australian Taxation Office also has a standard form that can be used for this purpose.
Contribution splits are requested in the financial year following that in which the contribution was actually made. Put simply, if a contribution made in the 2007-08 financial year is to be split, the splitting request is lodged during the 2008-09 financial year.
Only contributions made in the immediate preceding financial year can be split.
The only time a contribution split can be made for contributions made in the current financial year is where the member’s benefit in their current superannuation fund is to be rolled over in its entirety to another fund.
Contributions can be split in favour of a spouse who is under the age of 65 provided, if aged between 55 and 65, they have not satisfied the “retirement” condition of release. If aged between 55 and 65, the spouse with whom the contribution is to be split may be asked to sign a declaration to the effect that they have not permanently retired from the workforce.
Contribution splitting may prove to be a useful strategy where there is a benefit to be achieved by having one member of a couple’s superannuation maximised. Let’s look at a simple example:
Dick is currently aged 57 and his spouse Sharon is 51. Both are having contributions made to a superannuation fund and Dick is looking at commencing a pension from his super under the “transition to retirement” rules. Let’s assume Sharon’s employer contributed $50,000 to her superannuation during the 2007-08 financial year. As Dick is keen to maximise his superannuation prior to commencing his pension, Sharon could request her super fund to transfer this contribution to Dick’s superannuation fund. As it was a concessional contribution (tax deductible) the maximum amount that may be transferred is 85% (or $42,500). The end result is that Dick’s superannuation account balance has been increased by $42,500 which, in turn will allow him to draw a higher amount of pension income.
When considering a contribution splitting strategy, a number of issues need to be considered. With this in mind, it is always advisable to seek professional advice before embarking on splitting contributions.
The splitting of superannuation benefits as a result of a marriage breakdown is a different process to that described in this article and will be covered in a future edition.
Take the first step 1300 882-456
or
Make an appointment to talk with someone CLICK HERE
