Superannuation Splitting

Super Contributions Splitting

LATE on Thursday, the Government delivered an early Christmas present to a swathe of Australians from different walks of life. Non-income earners, low-income earners and even high-income earners.

That present was super splitting. And it spells a more comfortable retirement for millions of people.

As you have probably guessed, super splitting refers to the ability to transfer money paid in after January 1 next year from one super account into a spouse's super account. Not just after-tax contributions either, you can direct your 9 per cent superannuation guarantee (SG) contributions into their account, as well as any salary sacrificed contributions.

Now before you go getting all protective about your dosh, there are some massive advantages in doing this.

Two super accounts mean two reasonable benefits limits, the allowable amount you can save within the concessionally taxed super environment.

They also mean two lump sums. So each person could withdraw with no tax implications $129,751 in the 2005/06 tax year (indexed annually), taking the couple's combined total to $259,502.

And they mean two tax-free thresholds, as well as a reduction in the income tax payable on any individual income streams.

Another plus from the legislation is that any tax payable on the contributions (in other words, because they are either superannuation guarantee contributions or salary sacrificed contributions and so attract the 15 per cent super contributions tax) is actually paid before the money goes into the spouse account. As a result, the spouse has no more tax to pay.

Which means - yes - you pay it. But if your fund is already a reasonable size and the aim is to build up a spouse's fund, that is no bad thing.

And it is of particular benefit if the contributor is approaching his or her reasonable benefits limit - much better for that fund, which is becoming too large anyway, to pay the tax than for the spouse's.

To keep things simple, the money will be transferred from the original to the receiving super account at the end of every tax year.

The option to split super with a spouse will be available come 2006 not just to married couples but also to people in de facto relationships. It's just a shame that the Government rejected Opposition calls to extend it to same-sex couples.

The Government finally extended superannuation death benefits to such couples last year, so its failure to offer this latest facility is a retrograde step.

That aside, the only restriction is that a spouse must be under 65 and not have permanently retired. Non-working spouses can just declare that they have not.

Oh, and a fund has to choose to offer the facility.

In terms of how much you can pay in, those who are more than 50 and feeling generous can divert gross contributions of up to $100,587 a year, the same amount you can contribute to your own super at that age.

Superannuation has never looked so attractive now that the super surcharge has been removed on high income earners, transition to retirement legislation means you can work and draw down on your super, the co-contribution sees the Government chipping in up to $1500 to the account of a low-to-medium income earner and you will soon be able to spouse split.

·       The split will take place via a transfer from one spouses account to another, either in the same or another fund. The ETP generated will be known as a contributions-splitting ETP.

·       A contributions-splitting ETP does not carry over an existing eligible service period (ESP) but will pick up the ESP of the receiving spouse after transfer.

·       Members can elect to split contributions made during each financial year after the conclusion of that financial year, however, those wishing to claim a personal tax deduction for their contributions must lodge their s82AAT notice before any splitting request.

The key points of the draft regulations that are not yet law are:

·       Splitting is not compulsory, with individual funds able to decide whether or not to offer splitting to members.

·       Contributions made on or after 1 January 2006 or allocated surplus amounts allocated on or after 1 January 2006 may be split.

·       A member may apply in a financial year to split contributions (subject to limitations) made in the previous financial year. However splitting applications can be made from 1 July 2006 at the earliest.

·       Up to 85% of deductible contributions (including SG, salary sacrifice, personal deductible or an allocated surplus amount) can be split.

·       Up to 100% of undeducted contributions can be split.

·       A contributions-splitting ETP will be fully preserved and consist of only taxed post-June 1983 and/or undeducted contributions components.

·       Amounts that may not be split include previously rolled over, transferred or allotted amounts, amounts transferred from overseas super funds, defined benefit components, amounts subject to a payment split or payment flag under the Family Law Act, employer ETPs and CGT small business retirement exemption amounts.

·       The member's spouse receiving the ETP must be aged less than the relevant preservation age (ie currently age 55) or aged between their preservation age and 65 years, but not permanently retired.