Superannuation Splitting is a valuable technique for couples looking to manage their superannuation contributions effectively. It can enhance the prospects of securing a comfortable retirement for both partners. In this article, our financial experts delve into the intricacies of super splitting, outlining its definition, advantages, eligibility criteria, and contribution specifics.
What Does Superannuation Splitting Entail?
Super splitting represents a mutual arrangement between you and your superannuation fund to divide contributions between your accounts and your spouse or de facto partner’s superannuation accounts. This strategy facilitates the growth of individual wealth, even if both parties have disparate income levels.
Why Should Couples Consider Super Splitting?
There are numerous compelling reasons for couples to explore super splitting, especially when one partner isn’t employed or earns less.
Some key motivations include:
- Preserving Life Insurance: By allocating contributions to your spouse’s account, you can assist them in covering insurance costs within their superannuation, such as life insurance. This is particularly advantageous when they wish to retain insurance coverage but might struggle to afford premiums due to a low super balance.
- Early Super Access: By splitting contributions with an older partner who can access their super earlier than their younger counterpart, couples may access tax-free super funds ahead of schedule. Alternatively, dividing contributions to a younger partner may help the older partner reduce their balance, potentially qualifying for higher age pension payments based on Services Australia’s assets test.
- ATO Threshold Management: Super splitting allows couples to equalize super balances, ensuring both remain below the thresholds set by the Australian Taxation Office (ATO).
Who Qualifies for Superannuation Splitting?
Contributions can only be split with a spouse who is either under 65 years old and not retired or has reached their preservation age, regardless of retirement status.
According to the ATO, a spouse can be defined as:
- Legally married.
- In a registered relationship under specific state or territory laws.
- Living together as a couple on a genuine domestic basis (often referred to as a ‘de facto spouse’).
Who Benefits Most from Superannuation Splitting?
Typically, a super splitting strategy is most suitable for couples below the age of 65, consisting of one high-income earner and one low-income earner or non-working partner. It’s also beneficial for couples with imbalanced superannuation balances who aim to equalize them for retirement planning purposes.
Which Contributions Can Be Split and How?
Only specific super contributions can be divided with your spouse, including:
- Employer contributions.
- Salary sacrifice contributions.
- Personal contributions eligible for deduction claims.
Contributions not eligible for splitting encompass:
- Personal injury election contributions.
- Transfers from foreign funds.
- Government co-contributions.
- Non-concessional contributions.
It’s important to note that if your balance is below $500,000, you may qualify for carry-forward concessional contributions, potentially increasing the amount available for splitting in a given year.
How to Initiate Super Contribution Splitting?
To commence the process of splitting super contributions, the ATO recommends reaching out to your super fund to ascertain if they offer this service and whether it incurs any fees. If your fund lacks its own application form, you can complete the Superannuation Contributions Splitting Application Form available on the ATO website. Detailed instructions accompany the form to facilitate the application process. Submit the completed form to your super fund, ideally during the financial year following the contribution to one super fund.
Crucial Considerations for Super Splitting
Super splitting is a complex financial strategy, and its suitability varies from one individual or couple to another. Before proceeding with super contribution splitting, it’s advisable to seek professional guidance from a licensed adviser who can tailor the strategy to align with your specific retirement objectives.
Additional Points to Bear in Mind:
- Fund Compatibility: Not all super funds permit super splitting. While most self-managed super funds (SMSFs) and APRA-regulated funds offer this option, it’s prudent to consult your fund’s trust deed or contact your super fund for clarification.
- Specific Forms: Some funds may require unique forms for splitting, so verify with your fund if such forms are necessary instead of relying on generic ATO forms.
- Fee Variability: Fees associated with super splitting vary among funds and accounting firms. To avoid unexpected costs, inquire with your fund regarding potential fees for this strategy.
At Vogue Advisory Group, our team of highly experienced financial advisers specializes in assisting individuals in effectively navigating the intricate terrain of super splitting. We are dedicated to providing tailored solutions and comprehensive support, ensuring that you make informed decisions to optimise your superannuation for a secure and prosperous retirement. Contact us today to benefit from our wealth of expertise and receive expert guidance that aligns perfectly with your unique financial goals and aspirations.