Super Splitting With Your Spouse
Super splitting is important when one member of a couple has a much higher super balance. It is also beneficial for couples that have a large age gap between them. Also, people with relatively low superannuation amounts will benefit from the ability to split super contributions with their spouse.
According to the super splitting provisions, up to 85 per cent of a member’s super contributions can be split with a spouse.
Super splitting is not possible when/if:
- The funds deed does not allow super splitting,
- a member has already made an application for super splitting in the relevant year,
- the amount of the benefit to be split exceeds the maximum splittable amount,
- the members spouse is 65 years or older, or
- the members spouse is aged between 54 and 65 and they have already retired.
In the circumstance of super splitting, a spouse refers to:
- a person that the member is legally married to,
- a person that the member is in the relationship with that is registered under certain state or territory laws that including registered same-sex relationships,
- a person of the same or different sex who lives with a member on a genuine domestic basis in a relationship as a couple also known as a de facto spouse.
- An application to split a member’s super contribution with their spouse can be made immediately after the end of the financial year in which the contributions were made. Not all contributions are splittable with a spouse. In simple terms: only concessional contributions, including employer, salary sacrifice and self-employed contributions, can be split with a spouse.
So what’s the benefit?
Super splitting can essentially double the tax-free lump sum limit. Those who are over 54 but under 60 can withdraw up to $195,000 as a lump sum. Lump sums withdrawn in excess of that limit are typically taxed at 15 per cent. A couple that would have only had access to the maximum tax-free lump-sum payout for the working spouse can gain access to the tax-free amount for both.
Also, super splitting can be useful when a person has a much younger spouse and they want to build up their superannuation to amplify their age pension entitlement. Superannuation is not considered an asset by Centrelink until a person reaches the age pension age.
With both of these strategies, it is important that they are begun as soon as possible. The earlier the second strategy is started, the less superannuation the older member will have when they become eligible for the age pension.
Combined with the pre-60 re-contribution strategy
Super splitting as a strategy can be combined with the pre-60 re-contribution strategy to create a tax-free super pension for a non-working spouse. The working spouse, upon reaching their tax-free lump-sum threshold in the super fund, would need to split the maximum contribution with the non-working spouse.
Once the non-working spouse turns 55, they can advise their super fund that they have retired and request a lump-sum payout up to the tax-free limit. The non-working spouse would then start an account-based pension made up of tax-free pension benefits.
Before doing anything
It is important that you speak to a superannuation professional before splitting your super with your spouse. The strategies outlined in this article may not actually benefit everyone, so it is vital that you discuss your options with an expert. Paris Financial can assist you today on (03) 8393 1000.
Tanya Hofbauer, Partner, Paris Financial