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Under the Tax Laws Amendment
(Superannuation Contributions Splitting)
Act 2005, superannuation contributions can
be split to an account held by your spouse,
either within the same fund as the member
or to a different fund, subject to certain
age and workforce participation conditions.
The measures provide couples with an avenue
to share their superannuation benefits and
allow single-income families access to the
tax-free threshold of $145,000 in a similar
way to dual income families.
Up to 85% of tax-deductible super contributions
(i.e. those paid by your employer and personal
contributions that have been claimed as
a tax deduction) made during this financial
year can be split between you and your partner
the following financial year.
It should be noted though that this is a
voluntary regime and superannuation funds
are not compelled to offer contribution
splitting. By splitting your super contributions
with your spouse, you may reduce your tax
if one or both of you decide to retire before
you turn 60.
Key benefits
- If you or your spouse
decide to take a lump sum super benefit
between the ages of 55 and 60, you will
each have access to the tax-free threshold
of $145,000. You can therefore withdraw
up to $290,000 tax-free before age 60.
- By splitting your
contributions to an older spouse, they
will be able to access the tax-free threshold
at an earlier date than would otherwise
be the case.
- Because superannuation
assets are not counted for Centrelink
purposes for those under Age Pension age,
an older partner could split their contributions
with a younger partner and potentially
qualify for more social security benefits.
How the system works
A fund member can split superannuation contributions
if the following conditions are met:
- they have accumulation style superannuation
benefits;
- their benefits are 'splittable' (see
below for more details);
- their superannuation fund offers contribution
splitting;
- they have a spouse - defined as someone
of the opposite sex who lives with you
on a bona fide domestic basis; and
- their spouse is not aged over 65 and
is not retired.
The legislation allows both taxed and untaxed
super contributions to be split. Taxed contributions
include employer contributions, superannuation
guarantee entitlements and allocated surplus
contribution amounts. Untaxed contributions
include personal undeducted contributions
and super co-contributions.
The maximum splittable amount for any financial
year is 85% of the taxed contributions and
100% of the untaxed contributions. The 85%
limit on taxed contributions is designed to
ensure that members cannot split more than
the amount remaining in their superannuation
fund.
Not all contributions can be split
Only amounts that are received as contributions
by your current superannuation fund
can be split.
This means that none of the following are
splittable:
- Amounts received for a member of a
regulated superannuation fund that have
been rolled over;
- Lump sum payments from a non-resident
non-complying superannuation fund;
- Payments made as a consequence of the
termination of employment or as a result
of the disposal of an asset;
- Superannuation contributions that are
subject to a split under a Family Court
order;
- ETPs resulting from the small business
retirement provisions.
If you or your employer make contributions
to a superannuation fund which are rolled
over to another fund before the end of the
financial year (or before a splitting application
is lodged), these amounts must be treated
as rollovers by the receiving fund and cannot
be split with your spouse.
Therefore, if you wish to split contributions
with your spouse, this needs to be done before
rolling over your entitlements.
It is also worth highlighting that contributions
which are split to a spouse's account do not
retain any of the characteristics of the applicant's
benefits. All 'contributions-splitting ETPs'
are classified as taxed components in the
spouses account. Likewise, the eligible service
period of the applicant does not transfer
to the receiving spouse's contributions-splitting
ETP.
Potential traps
- If you are significantly
older than your partner, you will need
to make sure that you have enough money
to meet your retirement income needs.
- You may need to reassess
your investment strategy if you and your
partner have different risk profiles.
For instance, often a partner who is still
working will have more of their super
in growth-orientated investment options
than someone closer to retirement.
Making a contributions-splitting
application
A splitting request can generally only be
made in respect of contributions made in the
previous financial year. As a result, a fund
member will have to wait until the end of
the current financial year to make a splitting
application.
However, if the entire benefit is to be rolled
over or transferred, a request to split contributions
can be made before the end of the financial
year.
Under the regulations, an application to split
an employee's contribution must be accompanied
by a statement from the spouse that they:
- are not retired if they are between
their relevant preservation age and age
65, or
- are below their relevant preservation
age.
The application also needs to specify the
proportion to be split from the member's taxed
and untaxed splittable contributions.
Preservation
A contribution splitting ETP is a preserved
benefit. This means that the receiving spouse
cannot withdraw any benefits until they reach
preservation age or meet some other condition
of release.
The preservation age for those born before
1960 is 55. For those born between 1 January
1960 and 30 June 1964, their preservation
age is between 56 and 59. For those born on
or after 30 June 1964 the preservation age
is 60.
Claiming a tax deduction or tax offset
If you intend to claim a tax deduction for
personal contributions made to your superannuation
fund, this should be notified to the fund
trustee before lodging a contributions-splitting
application. If your intention to claim a
deduction notice is submitted after your request
to split contributions, the notice may not
be accepted.
Self-employed people who would normally claim
a tax deduction for their super contributions
will not be able to claim a deduction for
that portion which is split with their spouse.
Similarly, the spouse contributions tax offset
cannot be claimed because the amount received
by your spouse is treated as an ETP rollover,
not a contribution. If you intend to claim
a tax offset for contributions to a spouse's
superannuation account, you must make the
contributions directly for the benefit of
your spouse and your spouse's assessable income
must be less than $13,800.
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