SMSF advisers and trustees should be aware of the importance of timing when it comes to contribution splitting strategies, a technical manager has said.
SuperConcepts SMSF specialist Anthony Cullen, noted rule changes that came into effect on 1 July 2017 had made splitting strategies more enticing for SMSFs, but without a thorough understanding of factors such as the impact of timing on splitting transactions, the strategy could prove ineffective.
In particular, Cullen said members in the process of establishing an SMSF and seeking to execute a contribution splitting strategy needed to ensure their application to split was made to their Australian Prudential Regulation Authority (APRA)-regulated fund prior to requesting a rollover of their benefits into their new SMSF.
“The idea of splitting seems an easy concept to understand. But, like many laws and rules, we need to consider the devil is in the detail. Ever evolving laws in other areas of contributions have flow on effects to splitting that need to be considered,” he said in a blogpost on the SuperConcepts website.
“There are provisions to allow for a split in the year in which the contributions are made – where the member’s entire benefit is to be rolled over, transferred (that is, to commence a pension) or cashed in that year. We have seen situations where members have made contributions to an APRA fund, then set up an SMSF and rolled their benefits over, before attending to the split.
“Unfortunately, the application to split cannot be made to the SMSF as the contributions were not made to that fund, nor are they counted towards the assessable income of that fund. In these circumstances, the application to split should be made to the APRA fund prior to the transfer request.”
Previous suggestions have been made for trustees to consider splitting their previous year’s contributions to a spouse in order to lower their total superannuation balance for the current financial year.