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Strategy # 1 Super Splitting

Super Splitting can be a very effective method of ensuring that you continue to maximise your Super contributions in the future.

The following article appeared in the Sydney Morning Herald on June 21, 2011. It has been written by Gayle Bryant.

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The article is below...
While there may be some uncertainty over superannuation regulations, super remains a tax-effective way of saving for your retirement. While the introduction of limits and caps is making it less so, there are strategies to help you make the most of what's on offer.
At the moment, if you are over 50 you can make a concessional contribution of up to $50,000 into superannuation. This decreases from July 1, 2012 to $25,000. However, if you have less than $500,000 in your account, it is proposed that you will still able to make concessional payments of up to $50,000 each year after July 1, 2012.
This feature opens up the possibility of splitting your super contributions with your spouse – a strategy that had some appeal up until 2007. Hugh Taylor, superannuation specialist with Pitcher Partners, says managing your fund account balance may create the scope to use this higher contribution limit.
“Say a small business person has $400,000 in super and his spouse has $100,000,” he says. “Previously the super balance per individual wasn't of too much concern but now with the reduced cap coming in, the business owner should be taking measures to keep the balance below $500,000 to be able to continue to contribute the higher amount”.
Taylor says this can be done through super splitting – a strategy that can still be carried out this financial year. “If you put $50,000 of concessional contributions into super in the 2011 year you can elect to split the amount with your spouse,” he says. “You can put the entire amount into your spouse's account if you want. Effectively this is 85 per cent of $50,000 as you have already paid the 15 per cent contributions tax”.
As a result you will be able to contribute into super at the $50,000 level for a further year if your balance remains under the $500,000 cap. “This way you can build up your spouse's super with $50,000 concessional contributions until both of you exceed the $500,000 limit,” he says. “Because the $500,000 cap doesn't come into effect until July 2012 it makes sense now to keep your super balance below this amount to be able to take advantage of the strategy”.
But while the person electing to split can be of any age, the person to whom the contributions are being given must be either less than 55 years old or between 55 and 64 and not retired.
“This strategy would need to be tailored to suit particular family situations, such as the relative ages of each spouse and the impact of preservation rules,” Taylor says. “We also need to consider the outcome of the consultation process in relation to the proposed operation of the new rules, which have not been legislated”.
Centric Wealth technical research analyst, Natasha Panagis, says super splitting with your spouse to stay below the $500,000 limit is a good strategy but there are some issues to be aware of – one is the uncertainty with this strategy that surrounds the $500,000 balance limit.
“There is a consultation paper out at the moment and at this stage we don't know whether the ability to contribute $50,000 if your super balance is below $500,000 will continue,” she says. “But it makes sense to think ahead to ensure your balance is kept low enough to allow you to take advantage of the higher concessional contributions cap if this is the right strategy for you”.
Panagis adds that another way to keep your super balance below $500,000 could be to start a transition-to-retirement pension. “This way you are reducing your super balance because you have started an income stream from the fund,” she says. “But again, in the consultation paper, it was outlined that the government may include withdrawals in the mix so just be aware things may change”.