Splitting super contributions between your own self managed super fund (SMSF) and your spouse’s is a clever way to ensure you’re both making positive steps towards a comfortable retirement.
In this article we discuss what contribution splitting for your SMSF actually is and how to do it. If you’ve considered making contributions to your partner’s super account, but weren’t sure of the best way to achieve this, read on.
Liston Newton Advisory is here to help you understand your SMSF. Whether it’s to talk contribution splitting, for help completing a contribution splitting form, or determining if a SMSF is right for you, contact us to have a chat.
What is SMSF contribution splitting?
SMSF contribution splitting is when you split your existing concessional super contributions between yourself and your spouse.
Essentially, you’re taking part of the before-tax super contributions you would make into your SMSF, and contribute them to your partner’s super account.
Your contributions are able to be split once the financial year closes, and then any time up to the end of the following financial year—so you’ve got some time up your sleeve.
Each financial year you can split up to 85% of your concessional super contributions. This is because the ATO operates under the assumption that the contribution you’re making will form part of your SMSF’s assessable income, and will therefore be taxed at 15%.
Why would I split my super contributions?
The reason to do this is so you can increase your spouse’s super balance. It’s particularly useful if they’re on a lower income or not currently working, and you want to try and equalise your super balances.
Am I making a spousal contribution?
No, this is different from a spouse contribution.
You can make a non-concessional spouse contribution directly to your spouse’s super fund. There is no limit to the amount of spouse super contributions you can make, providing it’s still under their non-concessional contributions cap.
There are specific conditions that need to be met in order to split your SMSF contributions.
The conditions that need to be met to split contributions
To begin with, it’s important to confirm that your SMSF’s trust deed allows for splitting your super contributions. If it does, you’re good to get started.
- When splitting super contributions, your spouse is defined as someone you’re legally married to, are in a registered relationship with, or live with in a genuine de facto relationship.
- You must both be Australian residents when the contribution is made.
- Your spouse must not have exceeded their $25,000 before-tax contributions cap for that financial year.
- They must have a total super balance under $1.6 million, in the financial year prior to the one in which the contribution is made.
- Your spouse must be under preservation age. If they’re over preservation age, they must be under 64 and not retired in order to accept contributions.
Understanding preservation age
Preservation age is the age from which you can access your super fund if you’re retired.
</p><table><tr><td><p><strong>Date of birth</strong></p></td><td><p><strong>Preservation age</strong></p></td></tr><tr><td><p>Before 1 July 1960</p></td><td><p>55</p></td></tr><tr><td><p>1 July 1960 – 30 June 1961</p></td><td><p>56</p></td></tr><tr><td><p>1 July 1961 – 30 June 1962</p></td><td><p>57</p></td></tr><tr><td><p>1 July 1962 – 30 June 1963</p></td><td><p>58</p></td></tr><tr><td><p>1 July 1963 – 30 June 1964</p></td><td><p>59</p></td></tr><tr><td><p>From 1 July 1964 onwards</p></td><td><p>60</p></td></tr></table><p>
What types of SMSF contributions can be split?
The main type of SMSF contributions that can be split are known as taxed splittable contributions. Taxed splittable contributions are:
- Those before-tax contributions made by your employer on your behalf
- Any salary sacrifice contributions you make
- Personal super contributions for which you’re claiming a tax deduction
Any taxed splittable contributions that you make are limited to your concessional contributions cap for that year. This currently sits at $25,000.
As of July 1 2019, Australians are now able to carry forward any unused concessional contributions cap amounts, and you’re able to do this for up to five years. This effectively allows you to save your unused contribution caps (if sensible), and split larger amounts with your spouse later on.
What types of SMSF contributions cannot be split?
Understanding what types of contributions can be split is relatively easy. There are a lot more rules around what types of SMSF contributions can’t be split.
- Any personal contributions for which you can’t claim a tax deduction
- Any contributions your spouse makes to your super account
- Any downsizer or First Home Super Saver Scheme contributions
- Low Income Super Tax Offset and Government co-contributions
- Contributions that have a capital gains tax election
- Any allocations or transfers from foreign funds
- Benefits from a super rollover
- Contributions from a temporary resident
- If your relationship breaks down, you can’t split those super benefits either.
What makes an application invalid?
You can make an application to split your SMSF contributions any time following the close of that financial year, up until the end of the following financial year. However, you can only apply for super contribution splitting once each financial year.
For example, if you were splitting contributions for the 2019/20 financial year, you have until 30 June 2021 to apply to split these contributions.
There is an exception. For the year in which your super benefit is being withdrawn, you can apply to split super contributions for that year if the entire super sum is being withdrawn.
Your application is considered valid if:
- Your SMSF deed allows for contribution splitting
- You apply using the ATO’s valid SMSF contribution splitting form, Super contributions splitting application
- You have lodged the ATO’s Notice of intent to claim or vary a deduction for personal super contributions
- The amount you’re splitting is under the 85% threshold
- Your spouse is under 67, OR under their preservation age
- You haven’t already made an application that financial year
The final word
Contribution splitting for your SMSF is different from a spouse contribution. It allows you to split your concessional SMSF contributions between yourself and your spouse, to help them increase their super balance.
It’s a useful tool when they’re not working, or are on a lower income than you, and you want to help them continue to save for their retirement.
It helps to maximise the amount in both your super funds, and goes towards building a comfortable nest egg for your future together.