Are you a member of a couple where one person earns a lot more than the other and/or that person’s super balance is significantly higher than the other’s?
Recent changes to superannuation laws mean there could be several strategies you could be doing now to ensure you don’t hit hurdles in the future. One such strategy is “Super Splitting” which this article focuses on specifically.
What is Super Splitting?
An individual can split concessional (before-tax) contributions with a spouse provided the super fund the individual belongs to permits contribution splitting.
Why would you split your super?
The maximum amount you can have in your tax-free pension account in retirement is $1.6m. If you are on track to exceeding that amount then you may want to act now and plan ahead as it may be too late when you get to these higher balances.
How does super splitting work?
Only 85% of the contribution reaches the spouse account because the super fund deducts the 15% contributions tax before splitting.
If an individual plans to split super contributions with a spouse, then the receiving spouse must be under the age of 65. The individual making the contribution must complete a special form stating they intend to split super contributions. If you plan to claim a tax deduction for super contributions, then that notice to claim a deduction must be lodged before the super splitting declaration.
Note: You can only split contributions made in the previous year. For example, contributions made during the 2016/2017 year can only be split during the 2017/2018 financial year.
The full amount of the original contributions counts towards your concessional contributions cap, not your spouse’s cap.
Important: Anyone earning an adjusted taxable income of more than $250,000 must pay 30% tax on concessional contributions paid into a super fund (rather than 15%).
Is this appropriate for you?
If you think this strategy might be relevant to you, or you have any questions, please don’t hesitate to call either Andrew or Heidi who will be happy to answer your queries.