Originally when superannuation splitting with a spouse was introduced it was thought only higher income earners would benefit. This was because those people tended to have large amounts in super and super splitting was a way of reducing an excess superannuation benefit when there were reasonable benefit limits (RBLs).
With RBLs effectively being re-introduced with the $1.6 million pension transfer cap super splitting can be really important when one member of a couple has a much higher super balance. In addition people with relatively low superannuation amounts will benefit from the ability to split super contributions with their spouse.
The benefit of super splitting, especially for people with non-working spouses with no superannuation, is the effective doubling of the tax-free lump-sum limit. People who meet condition of release, and they are over 54 but under 60, they can withdraw up to $195,000 as a lump sum for the 2017 year. Lump sums withdrawn in excess of the limit are mainly taxed at 15 per cent.
Under the super splitting provisions up to 85 per cent of a member’s super contributions can be split with a spouse. Super splitting with a spouse is not available when:
-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.
For the purposes of super splitting a spouse includes:
-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.
Super splitting can have two benefits. The first benefit is for people who want to access the maximum amount tax-free as a lump sum before they turn 60. The earlier this strategy is started the better. Where this occurs, a couple that would have only had access to the maximum tax-free lump-sum payout for the working spouse can now have access to the tax-free amount for both.
The second benefit is where a person has a much younger spouse and they want to build up their superannuation so that they can increase their age pension entitlement. Superannuation is not counted as an asset by Centrelink until a person reaches age pension age. Again the earlier that this strategy is started the less superannuation the older member will have when they become eligible for the age pension first.
Super splitting as a strategy could be combined with the pre-60 re-contribution strategy to create a tax-free super pension for a non-working spouse. This would be achieved by the working spouse, upon reaching his or her tax-free lump-sum threshold in the super fund, splitting the maximum contribution with the non-working spouse.
Once the non-working spouse turned 55, they could advise the super fund they have retired and did not intend working and request a lump-sum payout up to the tax-free limit. These funds could be used to pay off a mortgage or be re-contributed as a non-concessional contribution. The non-working spouse would then start an account-based pension made up of tax-free pension benefits.
Documentation and Actions Required
-After the end of the financial year when the contributions were made a request to split a member’s superannuation with their spouse must be sent to the trustees. -The form or letter should state the following information for both the member requesting the split and the spouse receiving the split: -In addition the letter or form should state the name and ABN for the super fund of the spouse, the financial year in which the contributions were made, and the dollar amount or percentage of contributions to be split. This letter or form should be signed by the member. -TFN -Full name -Address -DOB -Sex -Daytime phone number -Email address
The spouse receiving the super splitting also must sign the letter or form and state they are either under 55 years old, or if they are 55 to 64 that they are not retired.
SOURCE, All rights reserved to – Invest Smart, Copyright © 1999-2019 InvestSMART Financial Services Pty Ltd, 8 May 2017, Eureka Report, Super splitting with your spouse, https://www.investsmart.com.au/investment-news/super-splitting-with-your-spouse/139251
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