What is contribution splitting?
Contribution splitting is a financial strategy that allows you to distribute certain before-tax (concessional) contributions to your spouse's super account. This approach is designed to even out super balances between partners and aim for more balanced retirement savings and tax benefits. Understanding the specific contribution splitting rules can help ensure your strategy is compliant and effective.
How contribution splitting works
This method involves reallocating pre-tax contributions—such as employer Super Guarantee contributions, salary sacrificed amounts, or personal deductible contributions—to your spouse's super account.
It's particularly advantageous for:
- High-income earners
- Pre-retirement couples with a significant difference in super balances
- Couples aiming to manage the $2 million Total Super Balance limit effectively
In some cases, couples may also choose to split super contributions in conjunction with a spouse superannuation contribution for greater flexibility and long-term benefits.
Note: Contribution splitting does not affect your concessional contributions cap.
Key benefits of contribution splitting
- Earlier access to tax-free super benefits: This allows earlier and potentially tax-free withdrawal of super funds, which is especially beneficial when one spouse is older.
- Enhanced Centrelink/Age pension benefits: These benefits may improve pension entitlements by not counting the younger spouse's super in asset tests.
- Managing Total super balance limits and Transfer balance cap: Helps to distribute super balances evenly, enabling both partners to maximise their contribution and more wealth in a tax-free retirement phase.
- Estate Planning and insurance: Ensures financial readiness in the event of an unexpected event such as the loss of a loved one and can assist in covering insurance fees.
These are just some of the many contribution splitting benefits available to couples planning for a more secure financial future.
Eligibility for Contribution Splitting application
Who can apply:
You can apply at any age. However, your spouse must meet eligibility criteria for contribution splitting—they must be either below their preservation age, or between their preservation age and 65 years and not yet retired.
When to apply:
The financial year immediately following the year contributions were made or, the same financial year, if the entire benefit is being rolled over, transferred or withdrawn (or a combination of these).
Invalid applications:
These are attempts to split more than the allowable amount or applications for a spouse over 65 or one who is already retired. Understanding the detailed contribution splitting rules is important to ensure your application is valid and accepted. Understanding the detailed contribution splitting rules is important to ensure your application is valid and accepted.
What contributions can be split?
Eligible contributions:
- Employer contributions
- Salary sacrifice contributions
- Deductible personal contributions
- Contributions made by family and friends (excluding spouse or minors)
Contribution splitting may be used alongside a spouse super contribution strategy to further grow the receiving partner's retirement savings.
Unsplittable contributions:
- Non-deductible personal contributions
- Specific contributions like CGT cap elections and personal injury elections.
- For a full list of contributions that cannot be split, refer to the Australian Taxation Office
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