Spouse Contribution Splitting

Understanding Spouse Contribution Splitting: A Smart Superannuation Strategy

Superannuation is a vital part of retirement planning inAustralia, and understanding the strategies available can make a significant difference in your financial future. One such strategy is spouse contribution splitting. This approach allows you to transfer part of your concessional contributions to your spouse’s super account, which can be particularly beneficial in certain situations.

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What is Spouse Contribution Splitting?

Spouse contribution splitting enables a member of a superannuation fund to transfer a portion of their concessional contributions (such as salary sacrifice or superannuation guarantee contributions) to their spouse’s super account. This strategy can be used within the same fund or across different funds, depending on the rules of each super fund.

However, there are eligibility criteria to consider. The receiving spouse must be under preservation age or, if between preservation age and 64, they must not have met the retirement condition of release. Contributions cannot be split to a spouse who is aged 65 or over.

How Does It Work?

Contributions made during the financial year can generally be split after the year has ended. For example, contributions made between 1 July 2023 and 30 June 2024 can be split from 1 July 2024 until 30 June 2025. Incases where the originating spouse intends to roll over or withdraw their entire super balance before the financial year ends, contributions can also be split within the same year.

The maximum amount that can be split depends on the type of contributions:

• Taxed Splittable Contributions: Up to 85% of concessional contributions, or the concessional contributions cap for the financial year, whichever is less.
• Untaxed Splittable Contributions: Up to 100% of these contributions, depending on the specific rules of the super fund.

Importantly, the split does not affect the concessional contributions cap of the receiving spouse, but it continues to count towards the originating spouse’s cap.

Tips for When Spouse Contribution Splitting is Most Viable

1.   Equalising Super Balances:
   
   If one spouse has a significantly higher superannuation balance than the other, contribution splitting can help to balance the accounts. This may be beneficial for maximising the amount both spouses can collectively transfer to retirement income streams while staying within their respective transfer balance caps.
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2. Age Difference Between Spouses:
   
   If there is an age gap between spouses, contribution splitting can help ensure that the younger spouse continues to grow their superannuation balance while the older spouse accesses their super earlier. This can be especially useful if the older spouse is approaching retirement or reaching the age pension eligibility age as it can reduce the assessable assets for Age Pension qualification.
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3. ‍Maximising Access to Centrelink Age Pension:
   
   By splitting contributions and equalising super balances, or reducing the older partners balance, you may be able to increase your combined access to the Centrelink AgePension. The Age Pension means test assesses the superannuation balance of individuals who have reached pension age. If one spouse is younger and below pension age, their super balance is not included in the means test. Therefore, splitting contributions to the younger spouse’s account can reduce the assessable assets for the older spouse, potentially increasing their Age Pension entitlement.
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4. ‍Optimising Tax Benefits:
   
   Spouse contribution splitting can also be an effective tax strategy. By transferring concessional contributions to a spouse with a lower income, you may reduce the overall tax burden, especially if the receiving spouse has not reached their concessional contributions cap.

Is Spouse Contribution Splitting Right for You?

While spouse contribution splitting offers several benefits, it’s not a one-size-fits-all solution. The strategy is most effective for couples looking to equalise their super balances, maximise their Age Pension eligibility, or optimise their tax position. However, it’s essential to consider your specific financial circumstances, including your combined super balances, income levels, and retirement plans.

Before moving forward with spouse contribution splitting, it's important to verify with your super fund whether they offer this option and understand their specific guidelines. For personalised advice, our financial planner, Nathan Watson, is here to help you navigate this strategy and ensure it fits your long-term goals.

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Spouse contribution splitting is a powerful tool in retirement planning, offering a way to maximise superannuation savings, optimise tax benefits, and potentially increase access to the Age Pension. With the right approach, you can build a more secure financial future for both you and your partner.

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