Splitting super contributions – The What, the Why, and the How!
Did you know that certain super contributions can be split with your spouse? In this post, we explore the nuts and bolts of this little-known strategy.
Super splitting allows you to split your concessional (before-tax) contributions with your spouse. Common types of concessional contributions are your employer’s compulsory superannuation guarantee (SG) contributions and any salary sacrifice contributions you arrange.
You can split contributions within the same fund (if you’re with the same provider) or to a different fund, providing your super fund allows it. It’s worth noting that only the contributions can be split, not the account balance of your super fund. You must be married or in a de facto relationship (same or opposite sex) with the person with whom you wish to split your contributions.
There are also some restrictions on the receiving spouse. Namely, they must be either:
- under 55 years of age or
- aged between 55 and 64 years old and meet certain conditions, such as not being retired.
If your spouse is 65 years or older, you can’t split your super contributions.
The question of why really depends upon your needs.
Women are often at a disadvantage when it comes to super as a result of taking time off work to raise a family. One way to help bridge this gap is by splitting super contributions. This can also help you be better prepared for any future changes to taxes and/or super rules.
If there is an age gap between members of a couple, splitting super contributions may be used to build the super balance of the older spouse, who is able to get their hands on their super sooner. Finally, it may help improve Centrelink benefits. Splitting super contributions from an older spouse to a younger spouse could shield the superannuation assets of the younger spouse from the means test. This is because money you have in super in the accumulation phase, while under Age Pension age, is not counted under the assets test.
For more on this strategy, please see – Age Pension: A younger spouse could get you more pension!
First, you should check with your super fund that they provide the option to split contributions and obtain the relevant paperwork and instructions. You may want to ask your fund if the forms must be received by a certain date. You will need to tell your super fund from which financial year you wish to split contributions.
You can apply to split contributions either:
- from the previous financial year (the application must be made between 1 July following the end of the financial year in which the contributions were made and the following 30 June), or
- during the financial year in which the contributions are made if you plan to roll over, transfer or cash in your super before the end of that financial year.
Splitting super contributions can be a tricky area and is not suitable for everyone.
In some instances, it could even be counter-productive. For instance, if you are the older, higher income spouse and your priority is to access your super nest-egg sooner, splitting your contributions with your younger spouse won’t help this cause.
The first step should be to get some professional advice to work out if it’s right for you.
Wally David, CFP®
Financial Planning Matters