Spouse Contribution Splitting: Why It’s Worth Considering

Spouse contribution splitting is a strategy where you move a portion of your superannuation contributions to your spouse’s account. It’s not just about sharing, there are real benefits to doing this each year.

What is Spouse Contribution Splitting?

You can transfer up to 85% of your concessional super contributions to your spouse’s super account, provided they meet certain age criteria. This helps balance retirement savings and can offer tax and social security advantages.

Why Split Contributions?

-  Older spouse: If your spouse is older and can access super earlier, splitting some of your super helps them access funds sooner.

-   Younger spouse: Spouse splitting might reduce the wealth counted for social security, especially if your spouse is younger.

-  Stay under thresholds: Help keep your super below key caps such as the $300,000 work-test exemption threshold, $1.9 million transfer balance cap, or $500,000 catch-up contribution limit.

-  Protect against rule changes: Equalising super balances can offer protection if laws change around account balances.

Things to Keep in Mind

-  Access issues: If you split contributions to a younger spouse, they may not access it until later.

-  Social security: Splitting could affect your spouse’s social security assessment, especially if they’re older.

-  Costs: There may be transaction fees and potential CGT if assets are sold to facilitate the split.

-   Thresholds: Don’t exceed contribution caps with the split, as this could impact your retirement plans.

-  Ownership: Once split, the funds are owned by your spouse, which could affect estate planning, especially in blended families.

Contribution Caps

The amount you split still counts towards your concessional contribution cap, and you can only split up to 85% of your contributions. But it will be the full original 100% contribution amount that will count towards your cap.

If you are a member of a public sector superannuation scheme, it is possible you are receiving untaxed contributions into your super account. In this instance, you may be able to spouse-split 100% of the employer contributions made into your account, provided your super fund permits this.

How to Split Contributions

To split contributions, you’ll need to fill out a form on your super fund’s website. It’s a simple process, but be sure to check if there are any costs involved, like transaction fees. You and your spouse will also be required to sign the declaration that you are eligible to make and receive the spouse-split contributions, based on the contribution splitting rules.

Example

Let’s say you’re 60 and your spouse is 61. You’ve made $15,000 in concessional contributions. You can split up to $12,750 (85%) into your spouse’s account. Had my wife been aged 65 or more, or been 60 or over and retired, I would not be eligible to spouse-split contributions to her

Spouse splitting can be a great tool to optimise your retirement strategy, just make sure you understand the pros and cons!