| Contribution – splitting
What's it all about?
Many Tasplan members will have heard at least something about a new Government superannuation initiative called 'contribution - splitting'.
As the name implies, members will be able to direct their super fund to transfer amounts of super contributed on their behalf into the super account of their spouse or defacto partner.
So-called 'splittable contributions' are those made (either employer or personal) from 1 January 2006. A member can request that up to 85% of employer contributions and 100% of personal contributions made after this date be paid into the account of a partner or spouse.
A request to split contributions can be made from July of the year following the one in which contributions have been made.
In other words, for contributions made between January and June 2006 a request can be made in July. A request must be made by 30 November for the preceding financial year(other funds may have different timeframes).
The Tasplan Trustee has determined that a minimum balance of $1500 must be maintained in the Tasplan account from which funds are being transferred. This is so that other Tasplan members are not affected by the Government's requirement for Funds like Tasplan to protect small account balances(ie: Member Benefit Protection).
A nominal transaction fee based on the user - pays principle is likely to be apply however the actual administrative cost of splitting is still being determined.
Why would anyone want to split super contributions with their partner?
In 2002, the Federal Government released a paper in which it described the objectives of contribution-splitting as being ; -
- To provide couples, including those not able to make voluntary contributions, with access to two ETP low-rate thresholds and two Retirement Benefit Limits (RBLs) in the same way as dual income families; and
- To provide low income or non-working spouses with their own superannuation assets under their own control and their own income in retirement.
If a member has a significant amount of super which is likely to exceed the threshold beyond which a higher rate of tax is payable (ie: the lump sum retirement benefit limit or RBL - it's currently $648,946) moving super to a partner's account (where there is a lower balance) may mean that less tax will be paid.
Couples are also able to access two tax-free thresholds, meaning a potential big tax saving.
This threshold is the amount of the Post June 1983 component that is able to be withdrawn tax-free if taken as a lump sum on retirement (when the person is aged 55 and over) .
For 2005/06 this amount is $129,751. Any Post June 1983 Component over that amount will be taxed at 16.5% if taken as a lump sum (refer example below).
By contribution-splitting a couple may be able to 'optimise' their retirement outcome by paying less tax on their retirement nest egg. Members should seek advice from a licensed financial planner about whether a benefit will apply.
In summary, contribution-splitting may improve the retirement outcome for some couples, however, whether or not there is a benefit depends on the individual circumstances of the couple.
Contact IFFP on 1300 138 848 to arrange a free appointment to discuss contribution-splitting with a Tasplan financial planner.
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Example 1
Martin reaches age 60 and retires. At that point he has an amount of $200,000 in his superannuation account.
His spouse, Martina, is then aged 56 and has a lesser figure of $50,000 in her super
The amount is all Post June 1983 and Martin has elected to take all of it as a lump sum payment. He will not pay any tax on the first $129,751 but the tax payable on the balance ($70,249) will be $11,591
However if Martin had shared his super contributions with Martina over the years, in a way that saw them achieve roughly $100,000 each in super, there would be no tax at all payable by either of them if they took the entire amount as a lump sum.
As a couple they would have saved over $11,000.
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Example 2
Peter earns 60,000 and Julie earns $25,000 per annum. They are both 57 and have calculated that they will need $800,000 when they retire.
Peter has $475,000 in super and Julie $30,000 - Peter is approaching the RBL of 648,946. However, he will be able to salary sacrifice, say, $30,000 into super and reduce his taxable income to $30,000.
In this way he can instruct his super fund to transfer $30,000 into Julie's super account with the aim of ensuring that they are both under the RBL limit.
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