The superannuation terms contributions splitting, spouse contributions and payment splitting are all sound similar and involving the spouse but they are not the same thing. Briefly, the different between them is that the spouse contribution involves putting the money into your spouse’s superannuation account and contributions splitting involves the transfer of contributions that are already in your account to your spouse’s account. Payment splitting is when a divorced couple splits their superannuation benefits between them as part of their property settlement.
This article explains superannuation contributions splitting in detail.
Superannuation contributions splitting is a process whereby you transferor rollover part of the previous financial year’s concessional contributions from your superannuation account to your spouse’s account. If your super fund offers this option (it is not compulsory for all super funds to offer their members this option but most do), you can split concessional contributions between you and your spouse once a year. The money is transferred to your spouse’s account as a rollover and not as a contribution.
The following rules apply to contributions splitting:
- You can only split concessional contributions and these include SG, salary sacrifice & personal contributions that you have claimed a tax deduction on it. For example, if you’re self-employed, make personal contributions and you claim it as a tax deduction, you can split these contributions.
- You can only split 85% of the total concessional contributions received by your super fund as they have already deducted the compulsory 15% contributions tax and paid to the ATO.
- You can only put in the application for contributions splitting in the financial year after the financial year the contributions were made. For example, if the contributions were made in 2012/13 financial year, you will be eligible to put in the application to split in 2013/14 financial year.
- However, if you’re leaving your current super fund (either withdrawing due to retirement or rolling over to another fund) before the end of the financial year, you can request to split contributions in the same financial year before you exit the fund.
- The contributions that have been split and rollover to your spouse are counted towards your contributions cap when your super fund reports it to the Australian Taxation Office.
- If you make personal contributions and you’re eligible to claim a tax deduction on it, you must tell your super fund by lodging the Notice of intent to claim a deduction before you’re eligible to split the contributions.
- You can only submit the contributions splitting application once a year in the financial year following the financial year the contributions were made.
- There is no age limit on the transferring spouse. However, the receiving spouse must either be under 55 or if between 55 and 64, must be employed. You cannot split a contribution with your spouse who is over 65.
- The contributions that you split with your spouse are subject to preservation rules. That is, your spouse cannot withdraw it until he/ she has met a condition of release.
Unlike the spouse contribution where the spouse who makes the contributions receives a tax rebate, there are no such benefits with contributions splitting. The main reason for contributions splitting is to increase your spouse’s account balance. The advantages for your spouse to have the same amount of money as you in the account balance is that you both can take advantage of two tax-free threshold should you wish to withdraw the money as a lump sum before you turn 60. Furthermore, if one spouse is older than the other and you want to access superannuation early, you can split the contributions to the older spouse.
Superannuation benefits have two components – Tax-fee and Taxable (check your annual statement to see how much you have in each component). When you withdraw superannuation, you do not have to pay any tax on the Tax-free component regardless of your age or on Taxable component if you’re over 60. However, if you want to retire early and take your superannuation as a lump sum between the ages of 55 and 59, you may have to pay some tax on the amount in the Taxable component. This depends on the lump sum threshold. For the 2012/13 financial year, the threshold is $175,000 (indexed annually). This means there is no tax if the amount taken from the Taxable component is less than $175,000. The amount exceeding the threshold is taxed at 16.5% on withdrawal. The above explanation illustrates the benefit of two Tax-free thresholds.
If you’re considering this strategy, you should seek advice from a licensed financial planner to see if it is right for you.