30 Jun Tech Talk: Benefits of Splitting your Contributions
An effective long-term contribution splitting strategy can significantly increase a couple’s shared wealth and increase their capacity to make more and larger contributions into super. A spouse contribution split can be of assistance in reducing a member’s total super balance below one of the trigger points or, adopted as an ongoing strategy, a means to achieve a measure of account equalisation between spouses.
Contribution splitting enables a super fund member to split up to 85% of their concessional contributions (CCs) in a financial year with their spouse. Usually, the split will occur in the year after contributions have been made. However, where a member completes a contribution splitting application before closing or rolling out of a fund, the split can take place in the year of the contribution.
Couples who implement a contribution splitting strategy effectively can increase the combined super amount that can be transferred into tax-free retirement pensions. They may also be able to make additional non-concessional contributions (NCCs) or catch-up CCs.
Alternatively, the strategy may be aimed at the more traditional outcomes such as earlier access to super, funding a spouse’s insurance premiums or increasing Centrelink entitlements.
NOTE: Splittable contributions count towards the CC cap of the originating spouse only. When the amount is rolled over, it will be included in the taxable component of the receiving spouse’s
account.
For personal deductible contributions, a notice of intent must be completed by the client and acknowledged by the super fund before those contributions can be split to the spouse.
Traditional Benefits
Earlier access to super
The superannuation system has very specific rules with regard to accessing super interests before attaining age 65. Contribution splitting can be advantageous when there is an age difference between a couple. A younger spouse can split their previous years CCs to the older spouse who may be able to access their super interest earlier. Depending on eligibility, they may be able to commence a transition to retirement pension, a retirement phase pension or withdraw a lump sum.
Access to tax concessions
Contribution splitting can have a tax advantage where the receiving spouse:
– has met a condition of release and can gain access to the low rate cap ($205,000 in 2018/19) for lump sum withdrawals, or
– is in receipt of a superannuation pension between preservation age and 60, where their income is taxed at a lower marginal rate than their partner’s.
Increase to Centrelink
Super interests held in accumulation phase while below Age Pension age are not assessable for Centrelink entitlements. When an older spouse contribution splits to a younger spouse who is below Age Pension age, they may be entitled to a larger payment because of an improved means testing assessment.
Provide super for spouse
Contribution splitting can provide an effective way to build wealth for retirement for a non-working or low income spouse. These funds also may be used to fund insurance premiums through super to protect against unforseen illnesses, disabilities or death.
If you would like to know more, talk to Michael Sik at FinPeak Advisers on 0404 446 766 or 02 8003 6865.
Important information and disclaimer
The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.
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