Superannuation fund members planning to use spouse contribution splitting to take advantage of contribution thresholds must be aware of the timeframes involved, which can straddle three financial years, according to an SMSF specialist.
SMSF Alliance principal David Busoli said spouse contribution splitting allows a fund member to transfer their after-tax concessional contributions to an eligible spouse who is under preservation age, or between preservation age and 65 and not retired, or between 60 and 65 and has not ceased working after age 60.
“The amount that can be split is 85 per cent of the previous year’s contribution based on the lesser of the amount of the concessional contribution made or the allowable cap in the year of contribution,” Busoli said.
He noted a spouse contribution split was treated as a rollover and did not reduce the contributions made for the member, but any contributions made under the five-year unused concessional contributions rule could be split.
However, a split did have an impact on the total superannuation balance (TSB) for the member and their spouse, which could be used to access lower contribution thresholds.
“For higher-balance members, splitting can result in an increased entitlement to make non-concessional contributions by lowering their TSB to under any of the three non-concessional cap pivot points,” Busoli said.
“For lower-balance members, it may provide access to the five-year unused concessional contribution entitlement by keeping, or lowering, their total super balance to below the $500,000 threshold.”
He added that any splitting strategy could not be executed in a single year and its impact would play out over several financial years.
“The split can generally only occur in the year following the year of contribution,” he said.
“This means that its effect on each member’s future contribution entitlements is delayed as a concessional contribution made in the 2022 year is not split until the 2023 year, so the lowering of the TSB does not have an effect until the 2024 year, based on the total super balance at the end of the 2023 year.”
