Exploring Super Contribution Splitting in Australia
When it comes to finances in marriage and de facto relationships, the saying “Mine is yours” often resonates. Yet, for some Australian couples, the reality is that one partner may hold a significantly higher superannuation balance.
Superannuation experts suggest that many households miss the chance to “level” their super balances come tax time, potentially allowing one person’s retirement savings to increase by over $100,000.
Derek Gascoigne, Senior Advice Manager at Unisuper, highlighted that Super Contribution Splitting is an underutilized strategy that couples should consider as the end of the fiscal year nears. “It involves dividing pre-tax contributions, like employer super guarantees, from one spouse’s super account to another,” he explained.
He noted that individuals can split up to 85% of their pre-tax contributions, which currently has a concessional contribution cap of $30,000, although that may change in future fiscal years. “If you haven’t used your concessional cap in the past five years, you might have a higher limit,” he added.
Experts have mentioned various reasons why couples, whether married or in a de facto relationship, might want to consider this. However, whether it’s beneficial really depends on each couple’s unique situation.
For instance, if one spouse has taken time away from the workforce, perhaps for family reasons, it could be worthwhile to look into this strategy. Derek noted that splitting super contributions can help balance the super between partners, assisting those who might have fallen behind due to time spent out of work.
He further explained that this can be particularly advantageous if that person phases back into work and stays below a certain income threshold. They might also be able to take advantage of unused caps from previous years, potentially increasing their pre-tax contributions to $132,500.
Additionally, splitting contributions can provide necessary funds for insurance premiums held within super accounts. For those with larger balances, there are also strategic benefits when it comes to approaching retirement.
According to Derek, equalizing super balances can help maximize the financial benefits under the transfer balance cap. This strategy is especially relevant in relationships with significant age differences. As one spouse ages, younger partners can shift super contributions to help older ones access their benefits sooner.
However, there are some restrictions on splitting super contributions. It only applies to spouses in a marriage or de facto relationship, and people over 65, as well as those who are permanently retired, aren’t eligible. Moreover, the cap currently limits spouses to splitting 85% of pre-tax contributions up to $30,000.
This process must be initiated through the super fund, and not all funds offer it. Some may even charge a fee for executing the split, so it’s important to check the specifics with your fund.
Derek advised, “Check with your fund to understand their process. If they allow splits, there will be forms to fill out. They may have their own form or use an ATO form.”
It’s also crucial to remember that this isn’t a one-time, simple process. The Super Contribution Split Application pertains only to contributions from previous fiscal years. “You can only submit one application a year, and you can choose the same or different super funds for your spouse,” Derek mentioned.
As we approach the end of the fiscal year, it’s important to note that applications for the 2023/2024 year must be submitted before June 30th. While the process might appear complicated, Derek suggests consulting a financial advisor to determine if a super contribution split is suitable for your financial strategy.
Ultimately, the benefits of this approach can vary based on personal circumstances, meaning it’s not a one-size-fits-all solution. A financial advisor can help you figure out if this method works for you.
