The removal or lessening of super tax concessions seems to be currently aimed at higher account balances.
What is a high account balance? Everyone has his or her own idea and I suspect the Government will settle on a figure at some stage.
In the meantime, it’s a good idea to remember that superannuation has always been about a person’s account balance, not about the combined retirement assets of a couple.
There has always been good reason to split super between a couple and the threat of attacking the tax concessions attaching to individual account balances adds to the urgency to do something about this now.
There are a few of options available to you:
1. Split contributions with your spouse
This involves taking recent contributions and moving them into your spouse’s name. It’s a remarkably simple procedure and in many cases simply involves you completing a form that you give to your super fund’s administrator (which may charge you a fee to implement it).
Further details about this can be found at the article I wrote about it here [1].
For what it’s worth, I’ve been using this option myself for the last few financial years and will aim to continue doing so until my wife’s and my account balances are roughly equal.
2. Withdraw lump sum money from super and deposit it in your spouse’s super account
This is a well-known strategy and has been used for more than two decades to eliminate or reduce income tax.
Before implementing it, the following issues need to be carefully considered:
- Lump sum tax on super withdrawals if you’re aged under 60.
- Contribution caps – especially concessional and non-concessional contribution caps.
- Ability to contribute to super – especially relevant if your spouse is aged at least 65; remember that contributions aren’t permitted if someone is aged at least 75 (except for a very short-time period after their 75th birthday).
- Age pension eligibility – withdrawals that are then given to your spouse – who may be younger than you and ineligible for the aged pension – would generally be considered a gift and may impact your ability to claim the aged pension.
- Taking lump sum money from a super fund pension? Don’t forget that the pro-rata minimum income payment must be worked out and paid before the pension can be commuted.
Most SMSF administrators should know all the issues to consider, like the proverbial ‘back of their hand’. A good financial adviser will also know the issues and what options are best.
3. Withdraw lump sum money from super and deposit into your own account as a non-concessional contribution
This is very similar to the second option, however this involves contributing the withdrawn money back into super. All of the issues discussed above are relevant.
The purpose here is to maximise your tax-free component. Before July 2007, this was a very common strategy but since then many people aged at least 60 haven’t seen the point of it because it wasn’t going to save them any tax.
In my view, maximising your tax-free component is plain common-sense, as you don’t know what future changes might be made to super.
Start planning now
It takes time to implement any or all of the above and time to decide what the best strategies for your circumstances are.
Thankfully I think you have adequate time to decide what is best before any nasty changes might be made.
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.