Couples advice on contributions splitting
A person’s superannuation savings are accumulated at the individual level. While you can own an investment property, shares, or have a joint bank account with another person, your superannuation is unique in a sense that it is your benefit only, even if you can ultimately pass it on, in some cases tax-free, to a dependant beneficiary.
So how can members of a couple effectively use the various tax and retirement savings benefits of super, to jointly benefit as they accumulate their retirement savings? What strategies can be employed that may help to reduce tax between members of a couple while boosting retirement savings, helping manage balances during periods away from work, and even help fund insurance premiums with pre-tax dollars?
While an individual cannot split their accumulated retirement savings with their spouse, without removing and then re-contributing the amount to the super system, they can split certain contributions, where eligible and up to certain limits, with their spouse each year.
When can this be done and who can benefit?
Firstly, a ‘spouse’ of a person includes another person (whether of the same or different sex) with whom the person is in a relationship that is registered under a law of a State or Territory, or another person who, although not legally married to the person, lives with them on a genuine domestic basis in a relationship as a couple.
In addition, there are some age-based restrictions. While there is no age limit for the spouse initiating a contributions split, the receiving spouse must either be under their preservation age, or aged between preservation age and age 65, and not yet retired.
A spouse would be considered retired when they have reached their preservation age, and an arrangement under which they were gainfully employed has ceased, and they never again intend to become gainfully employed, either on a full-time or part-time basis.
The age-related conditions effectively prevent amounts being split to a spouse who has met a condition of release and would therefore be able to immediately access the contribution.
Only certain types of contributions, known as ‘splittable contributions’, can be transferred to a superannuation account in the name of an individual’s spouse. A splitting amount can also be transferred to an account with the same or different trustee to where the individual currently has their super invested.
Splittable contributions include such contributions as personal deductible contributions, employer contributions including the superannuation guarantee (SG), salary sacrificed amounts, or award and voluntary employer contributions such as payments to super to fund insurance premiums.
It’s important to note that contributions splitting is also only available to members of accumulation funds and does not extend to defined benefit funds.
When an amount is split to an eligible spouse, the amount known as a ‘contributions-splitting superannuation benefit’ is considered a rollover from the original contributing spouse over to the receiving spouse. The original contribution therefore counts toward the contributions cap of the spouse who received the contribution in the first instance.
The rollover benefit to the spouse receiving the split will therefore be all taxable component, and a preserved benefit.
To initiate a split, the individual must apply to the trustee of their super fund to transfer their eligible splittable contributions made in the previous financial year, or for the current financial year, but only when the member’s entire benefit is to be rolled over, transferred or otherwise cashed out.
Offering contributions splitting is also at the discretion of the trustee, with only one application able to be made each year.
The amount requested in the splitting application also must not exceed the ‘maximum splittable amount’. This amount differs between taxed and untaxed funds.
For taxed funds, the maximum splittable amount is the lesser of 85% of the member’s concessional contributions for the year, and the member’s concessional cap for that financial year.
An individual’s concessional contributions cap may be higher than the general concessional cap in circumstances where they are eligible to carry-forward their unused concessional contributions.
Where an individual makes additional contributions under the carry-forward measure, the maximum amount they can split will include any carry-forward concessional contributions they may make.
For untaxed funds, the maximum splittable amount is 100% of employer contributions (including any amounts salary sacrificed), however the split cannot exceed the concessional contributions cap for the year, which again includes an individual’s eligible carry-forward concessional contributions cap space.
While such concessional contributions to untaxed funds count toward an individual’s contributions cap for determining amounts that can be contributed to a taxed scheme, these contributions are not capped when made to an untaxed scheme.
From 1 July, 2017, you can no longer claim a deduction for personal contributions made to untaxed funds.
So, what does an acceptable contributions splitting application look like?
Example #1 - An acceptable application to split (taxed fund)
Matt (44) had $25,000 in SG and salary sacrifice contributions made to his super account in the 2020/21 financial year. His total super balance as at 30 June, 2020 was $600,000.
On 19 July, 2021, Matt provides a contributions splitting application to the trustee of his fund, requesting to split $20,000 with his spouse Hannah (42).
Matt’s maximum splittable amount for the 2020/21 financial year is the lesser of:
- 85% of his concessional contributions, and
- His concessional contributions cap.
- Therefore, his maximum splittable amount is the lesser of:
- $21,250 (85% of $25,000), and
- $25,000.
Matt’s request to split $20,000 with his spouse is accepted.
Example #2 – An unacceptable application to split (taxed fund)
Anne (52) had $20,000 in SG plus $10,000 in salary sacrifice contributions made to her super account in the 2020/21 financial year. Her total super balance as at 30 June, 2020 was $1,000,000.
On 30 July, 2021, Anne provides a contributions splitting application to the trustee of her fund, requesting to split $30,000 with her spouse Jeremy (59).
Anne’s maximum splittable amount for the 2020/21 financial year is the lesser of:
- 85% of her concessional contributions, and
- Her concessional contributions cap.
- Therefore, her maximum splittable amount is the lesser of:
- $25,500 (85% of $30,000), and
- $25,000.
Anne’s request to split $30,000 with her spouse is not accepted.
The window for lodging a contributions splitting application with the trustee is generally limited to the financial year immediately after the contributions were made. For example, an application for contributions made in the 2020/21 financial year would need to be accepted by the trustee by 30 June, 2022.
There may also be some additional timing considerations to consider.
For example, where the member also intends to claim a deduction for the personal super contribution they wish to split, it is essential the member provides the trustee with a notice of intent to claim a deduction for their personal contribution before they lodge their spouse contributions splitting application.
BENEFITS OF SPLITTING CONTRIBUTIONS
What are some potential benefits of splitting contributions with a spouse?
For couples in the accumulation phase of their working lives, spouse contributions splitting can be a great way to maintain their retirement savings during periods of time out of the workforce, such as when taking on carer responsibilities.
For example, where one member of a couple is taking time away from work to provide care for younger (or older) family members, spouse contribution splitting can be a good way to continue to maintain a steady accumulation of their super with the assistance of a contributions split from their working spouse.
Even when both members of a couple continue to work, where there is a gap in the level of income earned between one another, increasing the concessional contributions (such as through personal deductible contributions or salary sacrifice) of the higher income earning spouse and then splitting the benefit with the lower income earning spouse can increase the effectiveness of the tax deduction claimed. Perhaps even more beneficial is to incorporate such a strategy with assisting to tax-effectively fund the life, TPD or salary continuance insurance premiums in both members’ accounts.
For those clients approaching retirement, managing total super balances (TSB) and personal transfer balance caps (PTBC) is also worth considering.
Contributions splitting ahead of time can help, and not just for those approaching $1.7 million in super. For example, the work test exemption is only available for individuals with a TSB below $300,000, and you need a TSB below $500,000 to be eligible to carry-forward any unused concessional contributions.
For those approaching the age when they are eligible for the Age Pension, continuing to accumulate super for the benefit of a younger spouse (who is yet to become eligible for the age pension) can result in a higher age pension entitlement for the older member of a couple when they become eligible.
Similarly, where one member of a couple will meet a condition of release ahead of another, there may be an opportunity to have earlier access to concessional super benefits.
Overall, considering managing balances between spouses as a whole, taking age, work status, future retirement intentions and health into account, can all be a good hedge against any future legislative change.
As you can see, spouse contributions splitting can be a useful strategy to help open up some of the other benefits super has to offer between members of a couple.
Tim Howard is technical consultant at BT.
CPD QUIZ ACCREDITED
This activity has been accredited as continuing professional development by the Financial Planning Association of Australia but does not constitute FPA’s endorsement of the activity.
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