Q: Regarding contribution splitting, can this be done when the member is living overseas permanently?
A: I am so glad somebody asked a question on contribution splitting. Personally, my personal view, I don’t want to push anything on you, but personally, I believe this is a really important issue that many of us need to start thinking about if we haven’t already.
Some background, if I can, to contribution splitting. What these rules allow us to do is to split, so to take up to 85% of the concessional contributions that were made into our own super fund account last year and then split them or allocate them to our spouse’s super account in either our fund or any other fund in the current year.
So, we can apply to split up to 85 % of the concessional contributions made for us last year and give them to our spouse this year. So that’s a really good way of trying to maintain relatively equal spouse balances inside super. So, if one spouse is working and one spouse is not working, they’re not receiving the ongoing super support. This is a way where we can split contributions across and maintain relatively even member balances. It’s well worth considering.
Now, you can split contributions where you are any age, but your spouse receiving those split contributions needs to be less than their preservation age, or age between preservation age and 65 and not yet retired. So that rule is just to stop us splitting contributions to a spouse who can then immediately withdraw the money.
So, in other words, you can’t use a contribution splitting strategy to immediately gain access to super. It could be that your spouse will be eligible to access sooner. That’s okay, so long as they can’t access them immediately. And the way you do that is you lodge an application with your fund in the year immediately after the year in which the contributions were made. So again, I mentioned contributions made for me last financial year can be split this financial year.
Why that’s important is if you’re looking to split contributions which were made in the 2022 financial year, you’ve got roughly eight days to do that this year before this financial year ends. We’re splitting contributions from last year and we’re doing that this year. here. Okay? I hope that makes sense.
Now, what you then need to do is check that your super fund allows contribution splitting. Most do. And check that your spouse’s fund allows to receive split amounts, which again, most do. You need to make sure that you follow the required process of each of those funds.
Now, just to look at it closer, the definition of spouse for splitting purpose, includes a person of any gender you are legally married to, you’re in a de facto relationship, or a relationship registered under certain state or territory laws. So, it’s not just husband wife. It could simply be you meet the definition of a spouse as set out there.
Now, in regards to the question which was asked by Nadia, a couple of things stuck out to me. You mentioned that it’s not an SMSF, so you need to check the fund, what their rules are, and what their specific process may be.
You also mentioned that the member is living overseas permanently. So I just want to rehash or restress the point that you can only do this for spouses. So I’m assuming that the person living overseas permanently is your spouse. If not, you can’t use the contribution splitting rules. So check with the fund if they offer spouse splitting, what their rules are, and what the specific process is. There’s nothing within the legislation itself that says they have to be in Australia. But again, check with the fund in question.
Couple of different articles that you could refer to here around How to boost your spouse’s super, and then How tax deductible contributions work. You can’t split non concessional contributions. You can only split, as I said, 85% of concessional contributions.