Using superannuation contribution splitting in a SMSF

One of the clear benefits of having a SMSF is the ability to implement strategies across member accounts without affecting current investments or dealing with multiple super fund administrators and their cumbersome paperwork.Super Splitting Super Splitting is also another way that an SMSF Specialist Advisor™ can show clients the advantage of using a professional for advice.

Superannuation splitting is an opportunity to look forward and plan for the future and have you family superannuation next egg prepared for legislative or tax changes while also taking advantage of any age differences to maximise Centrelink support and/or minimise tax legally. Each government attempts to address the matter of funding future retirement costs and to date they have predominantly sought to make enhancements via the superannuation system and these have involved making the superannuation system more flexible, adaptable and appealing to the population as a whole (although the GFC has seen them pull back on contribution limits and co-contribution support)

One of the most significant changes to the system was the introduction of superannuation contributions splitting from 1 January 2006, which allows superannuation contributions to be split or shared with a spouse. This does assist couples to maximise the benefits available in super and provide an avenue for spouses to share in super benefits or equalise balances. It is of most benefit to low-income or non-working spouses by allowing them to control their own super and have their own income in retirement.

Accessing higher lump sums if retiring early: If you’re both planning to retire under the age of 60 and take all or part of the super benefit as a lump sum, then each spouse can access their own tax-free threshold for lump sums (relating to the taxable component) of $200,000 (for the 2018/2019).

Paying insurance premiums for a non-contributing spouse You can use contribution splitting to help pay your spouse’s personal life, TPD and Income Protection insurance premiums through super, so both you and your partner may be able to afford the right level of cover. Especially useful is one spouse self-employed and still getting a business of the ground so cannot afford to contribute to continue cover.

However it is also a great tool for those couples that have an age difference and can benefit in 2 ways:

Increasing your age pension entitlements An older spouse may qualify for a higher age pension by splitting super to a younger spouse to exempt assets from Assets Testing. This means you may qualify for a higher age pension entitlement until the younger spouse attains pension age. Assets held in superannuation accumulation phase by pensioners and those on other allowances who are between 55 and age pension age are exempt under both the Income and Assets Test.

Access tax free income from age 60, sooner A  couple with a spouse who is aged 60 or over may access tax free payments earlier to fund earlier retirement. Improve after tax income and/or reduce debt earlier. In the case of a couple with one partner aged 60 or more, splitting contributions to the older spouse may enable earlier access to tax free income. This is because effective from 1 July 2007 super benefits have been paid tax free after a person attains the age of 60 and retires. (They can also take up to 10% of their balance while remaining at work via a Transition to Retirement Pension) This strategy can help increase the total income a couple is living off simply through splitting their contributions to the older spouse. The younger spouse splits their contributions with their older partner who once attaining the age of 60 is able to access these additional contributions earlier and tax free. This may benefit the couple by effectively reducing their overall assessable income. This is something to be thinking about now even if you are in your 30’s and 40’s as think of the tax and interest saved on being able to access tax free income or pay down a lump sum off your mortgage a few or more years earlier.

FUTURE PROOFING – Protect against legislative change: I believe that the concession for tax free pensions after age 60 will become too costly to maintain long-term and that some government in the future (they will have to be brave as soon 25% of the population will be over 60) will have to introduce tax on new pensions or limit the tax free lump sums available to pensioners. So whether you get funds into pension phase before changes or you have funds evenly spread across both spouse accounts to allow for both members to access any imposed limit to the max, it costs very little to put these strategies in place and they do not affect your investment mix. Implementation: The following types of contributions can be split:

  • Superannuation guarantee (SG)
  • Salary sacrifice
  • Deductible personal contributions (Self Employed & Self Funded Investors)
  • Voluntary employer contributions.

Generally, you can split contributions with your partner if:

  • you are married, or
  • in a de facto relationship – including same-sex couples, or
  • registered under a state or territory law, and
  • your partner is under their preservation age, or
  • if they are between their preservation age and age 65, have not retired under superannuation law.

You can split-off up to 85% of your concessional contributions to your spouse, which includes your SG and salary sacrifice contributions and up to the concessional contributions cap. You have until 30 June of each year to split contributions for the previous financial year. This means you have until 30 June 2023 to choose to split a contribution made in the 2022 financial year. You can also split contributions for the present financial year even if your entire benefit is to be rolled over, transferred or withdrawn.

If you are making a personal deductible contribution then make sure you have submitted the notice to claim a deduction before the Super Splitting request. A Superannuation Splitting request can be made to an SMSF by simply submitting a letter to the Trustee in writing stating the amount you wish to split to your spouse’s account. I recommend the Trustees minute the request and approve it with advice to the administrators to implement the split when completing the financials.

It is recommended that you seek expert advice from your financial adviser (SMSF Specialist Advisor™) before deciding if this strategy is right for you. As always I welcome and yes crave feedback! Also appreciate those who re-tweet educational material for the benefit of all in the sector. We have offices in Windsor and Castle Hill and are always happy to meet new clients for a one on one chat either face to face, by phone or on Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 NORWEST, NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 515762

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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