Spouse splitting contributions may have benefits
Where one spouse is younger
When there is an age difference between a couple, the younger spouse* can split their concessional super contributions to the older spouse. This, in turn, makes a larger pool of funds available for the older spouse once that spouse is eligible to commence a pension and access their superannuation benefits.
Take Bob, 60, and his wife, Mary, 50, who both work. If Mary spouse splits contributions to Bob, he is able to access the funds through a tax-free transition to retirement pension, thus benefiting them both. Spouse splitting can allow more funds to be in the pension phase where any income and/or capital gains generated by the underlying investments is tax exempt. Bob and Mary can use this income stream to pay off outstanding debt more quickly while lowering the tax liability of their fund.
Where one spouse is earning more
Spouse splitting can have a significant tax advantage where one partner has a significantly higher income than their spouse. For couples in transition to retirement phase (between 55 and 59 years), the high earning spouse is able to split their contributions to the lower earning spouse. Since the latter has a lower tax rate, the pension payments received in their name will have a lower tax liability.
How much can you transfer?
Super members are generally able to transfer up to 85% of their employer and salary sacrifice or other tax deductible contributions from the previous financial year to their spouse. However, not all super funds allow spouse splitting so you should check with your fund if such an option is available and also confirm whether any fees and/or deadlines apply. Members of a self managed super fund will be able to make spouse splitting contributions provided their trust deed is up to date.
Seek professional advice
Spouse splitting can be strategically beneficial to you and your partner, whether it is employed to increase flexibility or to improve the tax result for you as a couple. To ensure you maximise the benefits and satisfy the necessary conditions, you should seek professional financial advice. Your adviser will be able to put forward appropriate recommendations taking into consideration your financial situation and tax rates. They will also make sure the timing of the split complements strategies such as rollovers and commencing pensions. Before undertaking a spouse splitting strategy, it’s advisable to obtain specialised legal advice to weigh up its impact on your financial interests in the event of a relationship breakdown.
* The definition of a spouse includes a person to whom the member is legally married, or with whom the member is in a relationship registered under certain state or territory laws (including registered same-sex relationships), or who lives with the member on a genuine domestic basis in a relationship as a couple (including same-sex couple), known as a 'de-facto spouse'. Superannuation contributions splitting – superannuation funds: Which members are eligible to apply? (25 January 2011) Australian Taxation Office website (visited 30 April 2012)