Carry-forward rules a splitting boost

Carry forward contribution splitting

The new rules regarding carry forward concessional contributions can augment contribution splitting strategies from the current financial year onwards.

Strategies involving contribution splitting have been enhanced for the 2020 financial year and beyond as a result of new rules governing the use of carry-forward concessional contributions, a technical expert has said.

“What we need to think about here with the concessional contribution cap to which [a contribution splitting strategy] applies, is it now can take [into account] the unused five-year carry-forward concessional contribution amounts if the member has a total super balance of under $500,000,” Accurium head of technical services Melanie Dunn told attendees at The Tax Institute’s Tax Summit in Sydney last week.

“So the split to the spouse may now be able to be increased in a given financial year, which can be really valuable.”

Dunn said a contribution splitting strategy can be particularly useful where the member’s spouse is older or younger than they are.

“If we’ve got older spouses and we’re helping boost their balance, then they may have met a condition of release and be eligible to move that money into the tax-free retirement phase – putting more money in the tax-free retirement phase sooner in the SMSF,” she said.

Conversely, the strategy would also be of benefit if a member in pension phase has a younger spouse in accumulation phase and too high an asset balance to be eligible to apply for the age pension. In this situation, contributions can be split to the younger spouse, exempting the money that will subsequently sit in accumulation phase from assessment for Centrelink purposes, Dunn noted.

From a simpler perspective, she pointed out contribution splitting can provide a means to allow both spouses to maximise their respective transfer balance caps of $1.6 million, which in total can result in the SMSF having a $3.2 million transfer balance cap.

The carry-forward concessional contributions were first announced by the government in 2018 and took effect from the middle of that year.

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