Key points
- As Australia’s population ages over the next three decades, future governments may be tempted to impose new taxes on superannuation balances.
- The process for splitting contributions is very simple, all you have to do is complete a Tax Office form.
- You can split contributions if your spouse is aged under 55 and if they’re aged between 55 and 65 and not retired. You can be of any age.
The financial year-end is fast approaching and there are quite a few issues all superannuants need to think about before 1 July.
Today, I’m going to look at “contribution splitting”.
This strategy has been around for 10 years. It involves taking some or all of your contributions and transferring them to your spouse.
Who cares about splitting super – it’s tax-free after 60?!
This is a good and fair point. However it is still very relevant.
Contribution splitting was originally introduced to provide some relief from punitive taxation when someone exceeded their Reasonable Benefit Limit or RBL.
Thankfully, RBLs are no longer with us. But the desire to tax higher account balances in super never seems to be far from the headlines.
Indeed, it seems that the ALP will definitely head to the next federal election, with a policy of taxing pension account balances if the income generated exceeds $75,000 in any financial year. It is unclear if this new announcement includes realised capital gains but under a similar policy the ALP announced whilst in government, these were added into the definition of income.
Notice that the focus is on account balances, not on the earnings of the super fund.
As Australia’s population ages over the next three decades, future governments may be tempted to impose similar taxes.
So one way to potentially avoid these higher taxes problem is to split your super contributions with your spouse – assuming you’re lucky enough to have one.
Effectively, you take contributions made either by you or for you and transfer them to your spouse’s super account. In this way, the value of your account balance increases at the slower rate than it otherwise might have.
It may also mean you’re eligible for a part age pension.
Your fund’s trust deed
Contribution splitting is definitely allowed in the super laws.
But is it in your fund’s trust deed? You need to check this first before doing anything else.
Administration fees
The process to split contributions is very simple.
All you have to do is complete a Tax Office form, which is available at this link. [1]
It shouldn’t take more than about 10 minutes to fill this form out.
Once it’s done, you simply hand it to your fund’s administrator. They will then look after the rest. They’ll need to keep the document on file because it’s a tax document and your fund’s auditor might want to see it when checking the accuracy of your fund’s financial transactions and compliance with the super laws.
Your fund’s administrator might want to charge you a fee to help you complete the form, file it and to implement it in your fund’s financial accounts. You should check with them how much they charge.
Age restrictions
You can split contributions if your spouse is aged under 55 and if they’re aged between 55 and 65 and not retired. You can be of any age.
You can’t split contributions with your spouse if they’re aged between 55 and under 65 and are retired.
If your spouse hasn’t been in paid employment for many years, then there may be an argument that they’re retired. If this applies to you and your spouse, then I encourage you to take advice before proceeding with contribution splitting.
Time limit for fund to receive splitting document
For your 2013/14 financial year contributions, your splitting document must be received by your fund before 30 June 2015.
A super law allows you to submit the contribution splitting notice in the year the contributions are made if your whole super benefit in a fund is about to be paid out. However, this is very rarely used.
What contributions can you split?
For SMSFs, you can split all personal contributions that you’ve claimed as a tax deduction and all employer contributions, including salary sacrifice.
All after-tax or non-concessional super contributions and small business CGT contributions can’t be split.
A simple and easy transaction
This is one of the simpler transactions to implement within super.
For what it’s worth, I have done this for the last several years and will continue to do so unless the law is changed.
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.