Late in 2005, legislation was introduced that would provide many superannuation fund members with the opportunity to split superannuation contributions made on or after 1 January 2006, with their spouse.
Contribution splitting operates on an “annual split” basis. That is, after the end of each the financial year, a superannuation fund member whose super fund allows contribution splitting, can request the super fund to split contributions made during the previous financial year. As contribution splitting only came into effect from 1 January 2006, this year’s split only applies to contributions made between 1 January 2006 and 30 June 2006.
A super fund member may split up to 100% of their undeducted contributions (those contributions for which a tax deduction has not been claimed) and up to 85% of taxable contributions (contributions for which a tax deduction has been claimed).
Contributions may be split with a spouse provided certain criteria’s have been met.
A “receiving spouse” includes a person, who although not legally married, lives with their partner on a bona fide domestic basis as husband and wife. It does not include same sex couples nor does it include couples who live apart. To be eligible to receive a contribution split the receiving spouse must be under the age of 65 and not retired. In other words, the receiving spouse can’t have satisfied the “retirement” condition of release as prescribed in the Superannuation Industry (Supervision) Legislation.
The Australian Prudential Regulation Authority suggests that a receiving spouse aged between 55 & 64 may be able to receive a split contribution provided they are currently employed for more than 10 hours per week, or are not currently employed but have not yet decided they will never work more than 10 hours per week again, or have never been gainfully employed for more that 10 hours per week.
Where a receiving spouse aged 55 years or older, has retired, they will not be able to receive split contributions.
Therefore a receiving spouse who has already reached age 55 will need to consider a number of additional factors to ensure a split may proceed.
With the announcements contained in the 2006 Federal Budget proposing the abolition of reasonable benefit limits from 1 July 2007, and the proposal for people over 60 years of age to receive superannuation benefits tax free after that same date (where the benefits are paid from a “taxed” superannuation fund), the value of contribution splitting with a spouse may have diminished.
However, there are still circumstances where contribution splitting may be viable including:
• Where a spouse is approaching age 60 and they intend to commence receiving a tax free superannuation pension, opportunity exists for a younger spouse to split their contributions with the older spouse in order to increase their superannuation account balance;
• Couples who plan to commence superannuation income streams whilst under 60 years of age may derive tax advantages from income splitting.
• Younger couples may also benefit from contribution splitting, particularly where one partner receives little or no income. Split contributions may be used to fund vital life insurance cover for the receiving spouse.
• Whilst the proposed changes to superannuation announced in the Budget are far reaching, the benefit on contribution splitting, resulting in both partners having superannuation benefits, may help to protect them against the risk of future legislative change.
To split, or not to split? The issues are complex however contribution splitting may be an appropriate strategy for many people. You are encouraged to seek professional financial planning advice prior to requesting a contribution split.
Incidentally, for those people wishing to effect a contribution split, the Government has developed a standard form to be used to facilitate the splitting process. This form can be downloaded from the following link:
http://www.ato.gov.au/content/downloads/sprn15237-03-2006_w.pdf
Source: Peter Kelly – Professional Investment Services