Superannuation is a vital component of retirement planning in Australia, yet disparities often exist between partners’ super balances, particularly when one spouse takes time off work for caregiving or other reasons.
What is Contribution Splitting?
Contribution splitting enables an individual to transfer a portion of their concessional (before-tax) super contributions to their spouse’s super account, including employer contributions and any salary-sacrificed amounts. This legal strategy facilitates the growth of the receiving spouse’s super balance, promoting financial equity within the partnership. Non-concessional (after-tax) contributions are not eligible for splitting.
Eligibility Criteria
To utilise contribution splitting, certain conditions must be met:
- Relationship Status: The individuals must be legally married or in a de facto relationship, of any gender.
- Age Requirements: The receiving spouse must be under their preservation age (currently 60yrs) or between their preservation age and 65 years old while still working.
Benefits of Contribution Splitting
- Tax Efficiency: By balancing super balances, couples may reduce their combined tax liability, especially if one partner is nearing the transfer balance cap, being the maximum amount they can apply towards a tax-free income stream.
- Increased Access to Benefits: A more even distribution of superannuation can enhance eligibility for certain government benefits and concessions.
- Retirement Planning Flexibility: Aligning super balances allows for more strategic retirement planning, providing both partners with greater financial security.
Considerations and Limitations
- Annual Election: Contribution splitting must be elected annually, and the request is typically made in the financial year following the contributions.
- Fund Acceptance: Not all super funds offer contribution splitting. It’s essential to verify with your fund and understand any associated fees or requirements.
- Impact on Contribution Caps: While splitting contributions, it’s crucial to remain mindful of annual contribution caps to avoid excess contributions tax. You can visit Contributions splitting | Australian Taxation Office for more details on eligibility and contribution caps.
Conclusion
Contribution splitting is a valuable tool for couples aiming to equalise their superannuation and support mutual retirement outcomes. As with any financial decision, it’s recommended to consult with a financial advisor to ensure that contribution splitting aligns with your individual circumstances and retirement goals.