Contribution splitting is an underused strategy that can be implemented to keep balances in an SMSF in an uneven position where necessary, allowing members to take advantage of rules that may benefit their spouse who is also in the fund.
Heffron head of education and content Lyn Formica said while contribution splitting could be used over the long term to even up the balances between spouses, it could be used in different ways, which were often looked over by practitioners.
“Generally, when speaking to accountants and advisers about contribution splitting, they usually tell me it’s not really worth the hassle, it’s only 85 per cent of your concessional contribution and it’s not really going to change the dial much,” Formica said at the recent Heffron Super Intensive Day.
“Remember that contribution splitting is not always about evening up balances. We can use contribution splitting to do different things and it depends on the goal that we trying to achieve as to whose contributions we split to whom.
“We might be doing a contribution split because we want to keep a low-balance member under $500,000. They may have concessional contributions cap space they haven’t used in previous years and they will have the opportunity and the income to use that in future years so we want to make sure they stay under $500,000 for as long as possible.
“In this case we might be splitting to the higher-balanced spouse who has already gone over the limit, so we’re not necessarily trying to even them up and might actually be making one person’s balance even higher.”
She added the same strategy may apply when considering the age pension and there is a disparity in the ages of a couple where one of them is an age pension recipient.
“What we might want to do is split to the person who is youngest because their money is sitting in accumulation phase for a longer period and is not tested for asset test purposes, that is, for the age pension, until that person gets to 67,” she said.
“If we can split to them until they get to 67, we’re basically increasing the amount of age pension that the older of the two of them qualifies for.
“Alternatively, it might be about getting access to super earlier and if you have a client who is keen to get access as early as possible and it makes sense to do so, then we can look at splitting up to the older of the two members who’s going to reach preservation age soonest.”
