Key points

• There are estate planning reasons to split superannuation contributions, to make sure your spouse gets a share of your assets.
• By splitting money with your spouse, you might be able to convert the Taxable component into Tax-free component, which will see no tax payable by your non-dependant beneficiaries on your death.
• Also, benefits paid out of super from age 60 are tax-free but there are no guarantees this will continue.

There are a number of ways to transfer money into your spouse’s superannuation account. One way is through the “withdraw and re-contribution” strategy.

You take a lump sum out of your super and your spouse contributes it to their super account. Issues to consider and check-off for this strategy include your ability to withdraw money from super, tax, transaction costs, the ability of your spouse to make a super contribution and contribution caps. With this strategy it’s common for it to be done with hundreds of thousands of dollars in a single transaction. You can read more about it here.

But there is another way, via a transaction known as “contribution splitting”, which occurs inside your super fund’s member and financial records.

Why split your super with your spouse?

Firstly, there might be estate-planning reasons – that is, you want to transfer some of your super money into your spouse’s name now to safeguard against claims against that money after death.

Secondly you might want to ensure that your non-dependant beneficiaries, such as adult children, pay less tax when they receive money from your fund when you and your spouse have died. When you die, your super benefit’s taxable component will be taxed at 15% plus Medicare Levy when paid to non-dependants.

By splitting money with your spouse, you might be able to convert the taxable component into a tax-free component, which will see no tax payable by your non-dependant beneficiaries.

Thirdly, benefits paid out of super from age 60 are tax-free but there are no guarantees this will continue. Who knows what policy changes will be made in future years, but splitting your super with your spouse seems a reasonably simple way to avoid future adverse policy changes, if additional taxes applies to individual member accounts and not the assets of a super fund.

How to do it

There are some specific SMSF issues when it comes to contribution splitting that your need to consider.

1. Your SMSF fund’s trust deed – does it permit your contributions to be split with your spouse? If your deed is more than seven years old, it’s more likely the answer is no. You may need to amend your trust deed to ensure you have the power to do this transaction.
For non-SMSFs – does your fund allow contribution splitting? Many large funds no longer have the administrative capacity for it.

2. Tax Office form or your administrator’s own form – all you need do is complete this ATO form and hand it to your fund’s administrator.

This form is easy to complete – there would be something wrong if it takes more than 10 minutes to fill it out. Your spouse needs to sign it and it needs to be lodged with the fund the following financial year.

You can either nominate to split a specific dollar amount or up to 85% of the concessional contributions that have been made in the last financial year. (The 15% difference is to allow for contributions tax.)

3. Administration process – once your administrator receives this completed ATO form, they will obviously check it to make sure it’s all correct and then process it. This simply involves moving the contributions from your member benefit account to your spouse’s member benefit account. That is, your account falls while your spouse’s increases. (If your spouse doesn’t have an account in the fund then one can be created or they nominate another super fund on the ATO form.)

4. Administration fees – Your fund administrator may charge a fee to process the splitting form.

5. Your spouse – your spousal arrangement must be genuine and you must reside together; if your spouse is aged under 55 you can split contributions made last year to your fund; if your spouse is aged at least 55 and under 65 they can’t be retired. If your spouse is aged at least 65 then contributions can’t be split with them.

6. You can’t split some contributions – you can only split Concessional Contributions – that is, employer contributions, salary sacrifice contributions or if self-employed, personal contributions you have claimed as a tax deduction or employer contributions.

7. Split contributions still count towards your cap – although the contributions are passed onto your spouse’s member benefit account, they still count towards your concessional contribution cap for the financial year in which they hit the bank account

8. Time limit – for contributions made during the 2014/15 financial year, you must give the ATO notice to your fund’s administrator by 30 June 2016. There are funny rules if you’ve taken a benefit out of your fund during the year, such as a lump sum or pension

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.