What is Contribution Splitting?
Contribution splitting refers to the process where an individual’s superannuation contributions can be transferred to a spouse or spouse equivalent’s superannuation fund. The contributions that can be split under this process are known as concessional contributions. Concessional contributions refer to funds in super that are the result of pre-taxed income. These funds are then taxed at 15% by the fund which go the Australian Taxation Office (ATO).
Types of concessional contributions include:
- Super Guarantee Contributions – These contributions are mandatory superannuation payments made by an employer.
- Voluntary Employer Contributions – These contributions are voluntarily made by an employer.
- Salary Sacrifice – These contributions are usually made based on an arrangement made by an individual member and their employer to pay a portion of their salary as superannuation on top of mandatory contributions.
Rules Surrounding Contribution Splitting
The maximum amount that can be split under contribution splitting is 85% of an individual’s concession contributions for the financial year or the concession contribution cap for the financial year whichever is lesser. (The cap for the 2024/2025 FY is $30,000)
A spouse for the purposes of contribution splitting refers to the qualifying spouse being either legally married to, in a registered relationship or in a de facto relationship with the person who is making the contribution split. The spouse receiving the contribution split must be under the age of 65 and be an Australian resident.
To apply for a contribution split, an individual must submit the request after the financial year for which they would like to split contributions for e.g. Application must be submitted in 2024/2025 for contributions made in 2023/2024. Most super funds will have a contribution splitting form available or the ATO has their own contribution splitting form which can be used.
Reasons Why You May Decide to Split Contributions
There are various reasons as to why someone would decide to submit a contribution split:
- Potential to boost the super savings of your spouse where they may not be working and would not be receiving superannuation payments from an employer. The funds can be used to grow their investment or to cover insurance premiums attached to super.
- Balancing the amount of super that both you and your spouse would have when retiring. This can be beneficial where if one person has a higher amount of super, they would be entitled to a lower amount for their Age Pension.
- Potential to access benefits earlier. If one member in a relationship is closer to retirement age they will be able to access the funds earlier. Lump sum funds withdrawn after the age of 60 are tax free.
If you or someone you know wish to discuss this issue further, then please do not hesitate to contact us on 02 8999 9809.