What is contribution splitting?
Contribution splitting is a financial strategy that allows you to distribute certain before-tax (concessional) contributions to your spouse's super account. This approach is designed to even out super balances between partners and aim for more balanced retirement savings and tax benefits.
How contribution splitting works
This method involves reallocating pre-tax contributions—such as employer Super Guarantee contributions, salary sacrificed amounts, or personal deductible contributions—to your spouse's super account.
It's particularly advantageous for:
- High-income earners
- Pre-retirement couples with a significant difference in super balances
- Couples aiming to manage the $1.9 million Total Super Balance limit effectively
Note: Contribution splitting does not affect your concessional contributions cap.
Benefits of contribution splitting
- Earlier access to tax-free super benefits: This allows earlier and potentially tax-free withdrawal of super funds, which is especially beneficial when one spouse is older.
- Enhanced Centrelink/Age pension benefits: These benefits may improve pension entitlements by not counting the younger spouse's super in asset tests.
- Managing Total super balance limits and Transfer balance cap: Helps to distribute super balances evenly, enabling both partners to maximise their contribution and more wealth in a tax-free retirement phase.
- Estate planning and insurance: Ensures financial readiness in the event of an unexpected event such as the loss of a loved one and spouse and can assist in covering insurance premiums.
Eligibility and application process
Who can apply:
- You can apply at any age.
- Your spouse must be either below their preservation age or between their preservation age and 65 years, and not retired.
When to apply:
- The financial year immediately following the year contributions were made or,
- The same financial year, if the entire benefit is being rolled over, transferred or withdrawn (or a combination of these).
Invalid applications:
- These are attempts to split more than the allowable amount or applications for a spouse over 65 or one who is already retired.
What contributions can be split?
Eligible contributions:
- Employer contributions
- Salary sacrifice contributions
- Deductible personal contributions
- Contributions made by family and friends (excluding spouse or minors)
Unsplittable contributions:
- Non-deductible personal contributions
- Specific contributions like CGT cap elections and personal injury elections are outlined above.
- For a full list of contributions that cannot be split, refer to the Australian Taxation Office
Ready to optimise your super?
Whether married or in a de facto relationship, understanding the strategic benefits of contribution splitting is essential. Book a meeting with our Client Service team to discover how this approach can enhance your retirement strategy.
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