SUPERANNUATION CONTRIBUTION SPLITTING TB 09 Technical Services Version 1.6 Issued On 1 July 2018 SUMMARY Superannuation contribution splitting allows a member to transfer their employer and/or personal tax deductible superannuation into their spouse s superannuation account, subject to certain limits. The benefits of superannuation contribution splitting may include: earlier access to superannuation benefits earlier access to concessionally taxed superannuation lump sums and/or pension payments tax effective funding of life insurance premiums managing total superannuation balance for non concessional contribution, spouse contribution tax offset, government co contribution and catch-up concessional contribution purposes managing the amount able to be transferred to the tax free retirement phase under the transfer balance cap increased social security payments hedging against legislative risk. What is superannuation contribution splitting? Superannuation contribution splitting allows a member of a superannuation fund to transfer their employer and/or personal tax deductible superannuation into their spouse s superannuation account. The spouse must be a qualifying spouse. Who is a qualifying spouse? For splitting a spouse includes a person the member: is legally married to; or is in a relationship with that is registered under certain state or territory laws (including registered same-sex relationships); or lives with on a genuine domestic basis in a relationship as a couple (same or different sex known as a de facto spouse ). To be eligible for superannuation contribution splitting, the spouse must be: less than preservation age; or between preservation age and 65 and have not permanently retired from the work force. Generally the receiving spouse is required to sign a declaration to this effect on the contribution splitting application form. Preservation age Preservation age is determined by the member s date of birth as indicated in the following table: Date of birth Preservation age Before 1 July 1960 55 1 July 1960 30 June 1961 56 1 July 1961 30 June 1962 57 1 July 1962 30 June 1963 58 1 July 1963 30 June 1964 59 On or after 1 July 1964 60 What is the meaning of permanently retired from the workforce? A spouse is permanently retired from the workforce if: they have attained preservation age, and an arrangement under which they were gainfully employed has ceased (at any age), and they never again intend on being gainfully employed for 10 or more hours in a week. A receiving spouse aged less than 65 and never gainfully employed is eligible for superannuation contribution splitting.
Which are splittable? Contributions that may be split between spouses include: all employer superannuation (including Superannuation Guarantee and salary sacrifice) personal superannuation which have been claimed as a tax deduction and allocated surplus amounts (i.e. amounts allocated by the trustee to meet an employer s liability to make ). A receiving spouse aged less than 65 and never gainfully employed is eligible for superannuation contribution splitting. n-concessional cannot be split. For a list of splittable and those that are not, refer to Appendix A. Is there a limit on how much can be split? Splittable superannuation can be categorised into: taxed splittable untaxed splittable employer. Type of contribution Taxed splittable Untaxed splittable employer % which can be split The lesser of: 85% of the concessional for that financial year; and the concessional cap for that financial year; and the taxable (taxed) component of the member s superannuation interest if they withdrew their entire interest from the fund. the amount of untaxed splittable employer made in the financial year; and the concessional cap for that financial year; and the taxable (untaxed) component of the member s superannuation interest if they withdrew their entire interest from the fund. What is a taxed splittable contribution? Broadly, a taxed splittable contribution is one which is treated as a taxable contribution. This includes all employer (e.g. Superannuation Guarantee and salary sacrifice) made to a taxed fund, personal for which a tax deduction has been claimed and other that are subject to the 15% tax. A taxed splittable contribution also includes an allocated surplus amount. What is an untaxed splittable employer contribution? An untaxed splittable employer contribution is generally one which is made by the Commonwealth, a State or a Territory to an untaxed public sector superannuation scheme. On splitting, this contribution is treated as an untaxed element of a taxable component. If paid into a taxed superannuation fund, it will be subject to 15% tax. Must a trustee allow splitting? It is voluntary for a fund trustee to provide a -splitting service. Only members with an accumulation interest can split. A member s interest in a defined benefit fund may include both a defined benefit component and accumulation component (e.g. hybrid fund). A splitting request cannot be actioned in respect of a member s defined benefit component. The accumulation component may still be split. Tips: If contribution splitting is desired, should be made to a fund that allows contribution splitting. The benefits cannot be rolled over and split by the rollover fund. How does superannuation contribution splitting work? Contributions splitting works according to an annual split model unless the member is exiting the fund. The process requires the member to submit an application to the trustee requesting the split. Under an annual split (i.e. the member is not exiting the super fund), the application is limited to made in the previous financial year and does not extend to other superannuation benefits. Where the member is exiting the superannuation fund, the application may incorporate made in the previous and current financial year. The splitting of from the member to the receiving spouse will be treated as a splitting superannuation benefit. This may be allotted to an account within the existing fund, or alternatively transferred or rolled over to another fund.
Contributions splitting application To split, an application must be made to the trustee of a fund who offers the splitting service. The application is referred to as a splitting application. A superannuation splitting application form can be downloaded from the ATO website at the link below. Alternatively the superannuation fund provider may have their own application form. www.ato.gov.au/forms/contributions-splitting/ When is the application given to the trustee? A splitting application must be given to the trustee either: by 30 June of the following financial year; or during the financial year in which the are made, where the member s entire benefits are rolled over or cashed in that year. This is illustrated in the following examples. Example 1: When to submit application to split (member remains in fund) Splittable made in 2018/2019 30 June 2019 Submit application between 1 July 2019 and 30 June 2020 Example 2: When to submit application to split (member exits fund) Splittable made in 2018/2019 Submit application with request to withdraw/rollover Full withdrawal/rollover 1 December 2018 30 June 2019 When can a trustee reject a splitting application? A fund trustee can reject a splitting application in a number of circumstances, including: the trustee does not offer a -splitting service to members; the receiving spouse is not a qualifying spouse (see section titled Who is a qualifying spouse? ); the member has already made an application in respect of a relevant financial year which is being considered or has already been given effect by the trustee; the amount to which the application relates is more than the maximum splittable amount for the relevant financial year. A trustee of a superannuation fund cannot accept more than one splitting application in a given financial year. But if a person has multiple superannuation funds, it is possible for that person to submit a splitting application to each superannuation fund in respect of the splittable received by that fund. When should a member who intends to split provide the trustee with a notice to claim a tax deduction? If the member wishes to split some or all of a year s with the receiving spouse, they must first lodge the (section 290-170) tax notice to claim the deduction before requesting those to be split. What is the tax treatment of the superannuation benefit? The contribution-splitting superannuation benefit will consist entirely of taxable component (potentially both taxed and untaxed elements). The spouse s eligible service period applies for a -splitting superannuation benefit, and not the member s. What is the preservation status of the splitting superannuation benefit? The splitting superannuation benefit (and future growth) is preserved until the receiving spouse has met a condition of release. When paying a -splitting superannuation benefit from a member s account, which of a member s preservation amounts will be reduced first? Superannuation law does not specify the process for reducing a member s preservation amounts following the payment of a splitting superannuation benefit. It is therefore advisable that the
splitting superannuation benefit reduce the splitting spouse s preservation amounts in the following order: Preserved benefits Restricted non-preserved benefits Unrestricted non-preserved benefits. The superannuation fund processing the contribution split will determine what order the preservation components will be reduced. If a trustee accepts a splitting application, how long does the trustee have to pay the splitting superannuation benefit? A trustee that accepts a member s splitting application must allot, transfer or roll over the -splitting superannuation benefit as soon as practicable. In any case, this must be done within 30 days after having received the splitting application. Can a trustee charge for providing a splitting service? A trustee can charge a service fee to the member for giving effect to the splitting application. Consider other costs Consider any other costs incurred when contribution splitting. Does an exit fee apply to the contributing spouse s superannuation fund? Does an entry fee apply to the receiving spouse s superannuation fund? Will a buy/sell spread be incurred when exiting the contributing spouse s superannuation fund? Any benefits gained by contribution splitting should outweigh any costs involved (including any forgone investment returns on the costs incurred). Consider whether directing splittable superannuation into a particular investment option within the contributing spouse s superannuation fund could minimise these costs. Are there any trustee regulatory reporting requirements? A trustee who pays a -splitting superannuation benefit in a financial year may be obligated to give the ATO a statement setting out the matters required by the regulations. This regulatory report (statement) must be given no later than 31 October in the next financial year unless otherwise authorised by the ATO. Financial planning opportunities Earlier access to benefits Preservation of superannuation benefits generally means these entitlements cannot be accessed until preservation age is attained. If one member of the couple can satisfy a condition of release before the other, splitting to that spouse may be a means to accessing preserved benefits sooner. Earlier access to tax concessions If one member of the couple can access their superannuation benefits more tax effectively than the other, splitting to that spouse may be a means to minimising tax payable. For example, one member of the couple may turn age 60 before the other and have access to tax free lump sum superannuation benefits and tax free income stream payments (from a taxed source). Tax-effective funding of life insurance Personally owned insurance cover is usually funded with after-tax dollars, however cover held through a superannuation fund may be financed by making pre- tax or personal deductible. Contributions splitting may be used to great effect in this area, particularly where one spouse is paying tax at a higher marginal tax rate (MTR) than the other. The high- MTR spouse can make pre-tax for the purpose of funding cover on behalf of the low-mtr spouse, by splitting up to 85% of the to their spouse s fund. The ability to use two low rate caps The taxable component of a lump sum superannuation member benefit paid between preservation age and prior to age 60 is concessionally taxed up to the low rate cap ($205,000 for the 2018/19 financial year). Contributions splitting may allow a couple to maximise the benefit of having two low rate caps. Managing total superannuation balances A person s total superannuation balance impacts their: ability to make and the amount of non-concessional eligibility to receive a government co-contribution
eligibility to make catch-up concessional contributing spouse s eligibility to receive a spouse contribution tax offset A splitting strategy may help a couple to manage one or each of their total superannuation balances so as to benefit from the above measures. Managing transfer balance caps Generally, the transfer balance cap ($1.6 million 2018/19) limits the amount of super accumulation phase benefits that can be transferred into the retirement phase. Contributions splitting may allow a couple over time to maximise the amount of benefits that can transferred into the retirement phase by effectively using two transfer balance caps. Social security Upon attaining age/service pension age, a member s superannuation funds in accumulation phase are asset tested and deemed under the income test. A social security advantage may be gained where superannuation are split from one member of a couple of pension age, to a spouse below age/service pension age. Legislative risk Over time, superannuation legislation is subject to change. Spreading a couple s superannuation benefits across both members of a couple could help protect against future legislative risk. Appendix A Types of and whether they are splittable: Example Brayden has $700,000 in superannuation. He fully utilises his concessional cap each year. His spouse Deepika has $300,000 in superannuation and receives employer superannuation support of $6,000. They both intend to retire in 20 years. If the current scenario continues, Brayden will have $4,109,786 in superannuation at retirement and exceed his transfer balance cap by $1,220,008. Deepika will have $1,532,903 in superannuation at retirement and is well below her transfer balance cap. However, if Brayden contribution splits the maximum to Deepika each year the superannuation savings gap between Brayden and Deepika will reduce. Brayden will have approximately $2,898,394 in superannuation at retirement and the amount exceeding the transfer balance cap reduces to $8,616. Deepika will have $2,744,295 in superannuation at retirement and remains below her transfer balance cap. Total superannuation retirement savings exceeding the transfer balance cap are reduced from $1,220,008 to $8,616. Type of contribution Employer (including salary sacrifice) Personal a tax deduction has been claimed Personal no tax deduction claimed CGT cap Personal injury Spouse Child Third party (other than spouse and child ) Foreign fund transfers Assessable allocations from reserves Superannuation rollovers Government Co-contribution Interest subject to a payment split Can they be split? This Technical Bulletin has been produced by Technical Services and is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor s objectives, financial situation or needs. Before making a recommendation based on this publication, consider its appropriateness based on the client s objectives, financial situation and needs. Any examples or case studies shown in this publication are for illustrative purposes only and past performance is not indicative of future performance. Taxation law is complex and this information is our interpretation of the law. It has been prepared as a guide only and does not represent tax advice. Technical Services is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information in this publication that may impact their tax obligations, liabilities or entitlements.