Split your super from 1 January 2006
What is it?
You will be allowed to split your super contributions with your spouse. This covers the following contributions – employer super guarantee (9%), salary sacrifice and undeducted. It will not allow previous contributions, rollovers or investment earnings to be split. Each split will be known as a Contribution Splitting Eligible Termination Payment (ETP or rollover).
When?
It’s being proposed that contributions made from 1 January 2006 will be able to be split into your spouses fund. Any contribution made before this can’t be done. So delaying the contributions for the rest of the year would be a good idea for some. The actual splitting of the contributions is allowed after the end of the financial year and can take place any time in the next financial year. You can elect to move your January to June 2006 contributions any time between 1 July 2006 and 30 June 2007, thus giving you one year to do it.
Does your fund have to do it?
No, your super fund doesn’t have to do this as it’s voluntary, however with “choice of funds”, most funds will do this as it’s something competition will force them to do or lose clients. Defined benefit funds won’t be able to do it.
Who can do it?
Your spouse has to be under age 65, not retired and not defined as being permanently incapacitated and in an accumulation phase as the Government don’t want to allow “early access to super contribution”. At present, the suggestion is that it allows up to 100% of contributions to transfer. But this is not likely, as you need to allow for other things such as contributions tax, any fees, insurance and investment volatility. Therefore an amount of say 80% might be more likely.
Some strategies to consider
This will benefit a range of workers at various levels.
- High-income earner with low income or no income spouse. This will allow someone on a high marginal tax rate of 43.5% or 48.5% to salary sacrifice up to their Aged Based Limit which is the amount that can be contributed to super depending on your age and receive a tax benefit.
This means the high-income earner can make the contribution receiving the biggest tax benefit and then split with spouse. The removal of super surcharge is also a benefit.
- As above except spouse already making contributions to super via salary sacrifice.
This option is to stop the spouse making a salary sacrifice contribution and receiving only a 30% benefit when the contribution can be made by the highest income and then split at the end of the year. This will increase the tax saving by 12% to 17%, depending on the marginal tax rate.
- Superannuants have a high super balance and may break Reasonable Benefit Limit (RBL)
If you and your spouse’s super balances are uneven and you may reach your RBL limit, then increasing the spouses super is a great idea as it allows you to fund two RBL’s without having restrictions or even higher taxes in retirement.
- Insurance cover
There has been a study that Australian parents with children are under insured (life) by $1370 billion, which means we are only covered for approx 20% of what a family should be covered for. There is now no excuse not to have insurance cover that is required as cost isn’t an issue. The super fund can cover the cost which can be paid by employer SG 9% payment, a salary sacrifice from the highest tax payer or by obtaining the co-contribution from the Govt. This allows non working spouses or spouse working minimal hours to get the cover they need OR by restructuring your payments so the largest tax break is obtained which may allow for the insurance cover to be increased without costing any extra.
- Deferring super contributions until January.
If you can, it may be beneficial to suspend your super payments until January, as any contribution made in December can’t be included in the splitting.
