Super sharing is a couple's best bet

While the government has reaffirmed its 2013 election commitment not to change superannuation tax rules, Labor has foreshadowed super tax increases for higher income taxpayers and the Coalition may yet propose changes after it completes its review of the tax system.

Labor's proposals continue their actions in government to limit both the scope and attractions for higher income Australians to save for their retirement via superannuation. The target this time includes more than 9000 defined benefit pensioners, mainly retired public servants, politicians, military and judicial officers as well as up to 60,000 self-funded retirees.

The proposals add upward pressure to already buoyant property markets. Labor has shown a willingness to consider changes to negative gearing but only on a prospective basis. This gives an incentive to enter into new transactions before the rules change.

The latest proposals, particularly those for retirement pension recipients, highlight a major ongoing issue for married or de facto couples. All the policy discussion has focused on the annual income of individual taxpayers and individual superannuation pension income rather than on the combined income and superannuation of the couple. Any tax increases made on an individual personal income basis will discriminate against couples where one partner has a much higher income or superannuation than the other.

Different employment opportunities or work-life interruption for family or other reasons bring such situations. Only in divorce situations do the current super regulations allow couples to split their superannuation on an equal basis. Other couples have to organise their affairs if they are to achieve this outcome. The options available to do this include annual spouse contribution splitting arrangements or in retirement by withdrawing money and re-contributing it to the spouse with the lower account balance.

Defined benefit pensioners have no opportunities other than via a divorce to split their pension income with a spouse. Their only opportunity to equalise income is to acquire other assets including superannuation in the name of their lower income spouse.

Based on past experience, it would be optimistic to expect any changes, allowing for the fact that incomes and super assets may not be equally shared between partners. That is why couples, particularly those approaching retirement, need to focus on sharing their superannuation and other assets as equally as possible.

During working life, where one partner pays a higher contribution tax rate, there may also be a benefit in minimising superannuation contributions by the more heavily taxed partner and maximising those of the less heavily taxed partner.

 

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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