Sharing is caring. As is contribution splitting. But there are many other benefits with spouse-splitting super contributions than just the feel-good factor.
The contribution splitting rules can provide immediate benefits, strategic flexibility and protection against potential rule changes. Every couples’ retirement planning strategy should consider the benefits of spouse-splitting super contributions each year.
What is Spouse Contribution Splitting?
Spouse super contribution splitting is the act of opting to transfer concessional contributions from your superannuation account to your spouse’s super account. This is permitted within the spouse-splitting contribution rules.
What are the Contribution Splitting Rules?
You are able to split up to 85% of the concessional contributions made into your superannuation account within a financial year, provided your spouse is either aged lower than their superannuation preservation age or aged between their preservation age and 65 and not retired.
The table below details preservation ages, based on months and years of birth.
|Date of Birth||Preservation Age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|After 30 June 1964||60|
The reason you can only split up to 85% of contributions is due to this amount representing the concessional contribution amount, after standard contributions tax of 15% has been deducted.
Why Would I Spouse Split Contributions?
There are a number of advantages to spouse-splitting super contributions. Some of these include:
If you have an older spouse who may be eligible to access their superannuation before you, you may consider spouse-splitting some of your contributions to them, so that this portion of your retirement savings becomes accessible sooner.
If you have a younger spouse and you would like less of your overall wealth assessed for Centrelink entitlements or other social security purposes, you might consider spouse-splitting some of your contributions.
Remain below thresholds
Spouse-splitting contributions may help your super balance remain under certain thresholds, such as the $300,000 work-test exemption threshold, $1.9 million transfer balance cap, or $500,000 catch-up contribution limit.
Protection against legislative change
Spouse-splitting contributions as a form of helping equalise account balances between you and your spouse can be good practice to protect against potential future changes in legislation targeting higher account balances.
These are just some of the advantages of utilising the contribution splitting rules.
Disadvantages of Spouse-Splitting Contributions
There are some risks, disadvantages and considerations in spouse-splitting contributions to your spouse. These include:
If you spouse-split some or all of your concessional contributions to a younger spouse, it may mean waiting longer before accessing these funds, due to your spouse attaining their superannuation preservation age or retirement after you.
Increasing your spouse’s super balance through spouse-split contributions could result in more of your wealth being assessed for social security assessment, particularly if your spouse is older than you are.
Transaction costs and taxes
Switching funds from your super fund to your spouse’s super account may result in superannuation investments being bought and sold, which can result in transaction costs, such as brokerage, buy/sell spreads and other fees. Further, if assets need to be sold to facilitate the super split, there may be capital gains tax (CGT) implications.
Increasing your spouse’s super balance through spouse-split contributions could result in your spouse exceeding certain thresholds, such as the transfer balance cap, work-test exemption cap and carry-forward unused contribution cap. Exceeding these thresholds may restrict your overall retirement planning strategy.
Although superannuation is generally treated as a marital asset, spouse-splitting contributions will result in your spouse becoming the effective owner of these funds and will therefore have discretion on how these funds are distributed for estate planning purposes. This consideration is especially important where there are blended families, relationship breakdowns, children from previous marriages, second marriages, etc.
The above is a non-exhaustive list of the things to consider prior to implementing a superannuation splitting strategy.
Spouse Splitting and Contribution Caps
If you do decide to split concessional contributions to your spouse, does the contribution count towards your concessional contribution cap, or your spouse’s?
Well, that’s easy. Despite being split and transferred to your spouse’s super account; the contribution amount will still count towards your concessional contribution cap.
Also, remember that you are only able to split up to 85% of the contribution, but it will be the full original 100% contribution amount that will count towards your cap.
The maximum amount of concessional contributions that you are able to spouse-split is the lesser of 85% of your concessional contributions for a year and the concessional contribution cap for the year – noting that is is possible to have a higher concessional contribution cap for a year if you are eligible to utilise the carry-forward contribution rules and have done so.
Untaxed splittable employer contributions
If you are a member of a public sector superannuation scheme, it is possible you are receiving untaxed contributions into your super account (i.e. no contributions tax is being incurred). In this instance, you may be able to spouse-split 100% of the employer contributions made into your account, provided your super fund permits this. You will need to contact your superannuation provider regarding this.
How To Spouse Split Contributions
To spouse-split all or some of your concessional contributions for a year into your spouse’s superannuation account, you will need to complete the required form, which should be able to be found in the documents and forms section on your super fund’s website. Alternatively, you might consider contacting your super fund and asking what their process is.
The form will include your details, your spouse’s details (including their super fund), the concessional contributions made into your account for the year and the amount that you wish to split into your spouse’s super fund.
You and your spouse will also be required to sign the declaration that you are eligible to make and receive the spouse-split contributions, based on the contribution splitting rules.
Your super fund may allow you to use the ATO Superannuation Contributions Splitting Application form. This form will need to be sent to your superannuation provider, not the ATO.
Costs of Spouse Splitting Super Contributions
There should not be any costs associated specifically with spouse-splitting contributions. However, indirect costs such as transaction costs and taxes may be incurred as a result of splitting. You should contact your super fund to confirm any costs prior to spouse-splitting contributions.
If you seek advice from a financial adviser on how much you should be spouse-splitting, you may also incur professional advice fees.
We offer personal retirement planning advice through our licensed financial planning practice, Toro Wealth. Feel free to get in touch with us if you would like to discuss how personal advice can benefit you.
Spouse Splitting Contribution Example
Let’s say I am 60 and my wife is 61. Over the course of a financial year, a total of $15,000 in concessional contributions were made into my superannuation account as a combination of employer superannuation guarantee (SG) contributions and salary sacrifice contributions.
All of the contributions made into my account were taxable contributions. That is, they incurred contributions tax. Therefore, I am able to split up to 85% of the $15,000 contributions, being $12,750, into my spouse’s account.
If I was a member of a public sector super scheme and one that specifically made untaxed super contributions into my account, then I might be able to split 100% of the contributions to my spouse.
Had my wife been aged 65 or more, or been over her preservation age and retired, I would not be eligible to spouse-split contributions to her. Her age for this purpose is determined by the date the spouse-split contribution application declaration is signed.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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