Super splitting is a section of superannuation legislation that’s not well known or used by individuals and financial advisers. Principally, the reason is that it can only be used in limited instances. Nevertheless, in the right situation, it can be a fantastic financial advantage to couples.
So what is ‘super splitting?’
This allows a spouse to transfer their employer and salary sacrifice contributions to their partner’s super account. The maximum amount that can be transferred in a financial year is the concessional limit that applies for the person who will split their super (currently $30,000 per year for those under 50 and $35,000 for those 50 and over). Contributions that have been ‘split’ and transferred to their spouse do not affect their personal contribution limits. This means the receiving spouse can still receive employer contributions, salary sacrifice or make personal contributions.
We have identified several strategies that can benefit from the use of ‘super splitting’:
Super splitting with an older spouse
A person who is 60 or older and still working, can receive a tax-free pension from their superannuation savings. This pension is known as a ‘Transition to Retirement income stream’ and offers a range of tax effective strategies to greatly reduce personal tax. Super splitting can help to increase the superannuation balance of the older spouse to access this strategy.
The receiving spouse will still be able to take advantage of the Government Co-contribution strategy
If you earn less than $51,021 per year and make a $1,000 after-tax personal contribution to super, the Government will match it up to $500. The benefit begins to decrease for every dollar you earn over $36,021 and phases out completely above $51,021 per year.
Ability to still use the spouse contribution strategy
This contribution opportunity provides a tax offset of $540 in a financial year to the spouse who makes a $3,000 after-tax contribution to their spouse’s account. The maximum income that the receiving spouse can earn is $13,800 in a financial year.
Maximise the new $1.6m account based pension limits (as of 1 July 2017)
The Government has proposed from 1 July 2017, a $1.6m per person limit on what can be held in an account based pension. Super splitting allows a spouse to increase the other spouse’s superannuation balance so they can each aim to have balances of $1.6m in pension phase.
Tips when using ‘super splitting’
- The contribution to be ‘super split’ must be transferred no later than the end of the following financial year.
- Not all super funds allow ‘Super splitting’ so you should investigate this first.
- Retain contributions that are to be ‘split’ in cash. It’s not prudent to invest these contributions a a time period of less than 12 months. There are also costs to buy and sell investments.
- ‘Super splitting’ can only be used when the receiving spouse is less than 65.
- A spouse for ‘super splitting’ is restricted to a relationship partner and not an ex-spouse.
The Superannuation amendments announced in the May Budget have been revised and likely to be passed in parliament. We will focus on these changes in future articles.