ONE of the most exciting changes to superannuation happened seven years ago when they introduced superannuation spouse splitting.
Once a year you can instruct your fund to transfer, to your spouse, your concessional contributions made in that year. Because the 15% contributions tax on the concessional contributions has to be taken into account the amount of concessional contributions that can be split is limited to 85%.
Think about Jack, aged 52. He earns $125,000 a year and is contributing $25,000 a year to superannuation due to a combination of the compulsory employer superannuation and his own voluntary sacrificed contributions.
He already has over $600,000 in superannuation but his wife Katherine, who does not work, has none. His deductible contribution of $25,000 will still be liable for the 15 per cent contributions tax but he can ask his fund to put $21,250 of it into her superannuation account. If he keeps up this strategy until he is 65 she may end up with over $520,000 in her own superannuation account if her fund earned 9% per annum.
Super splitting doesn't get Jack out of the 15% contributions tax but it still has advantages. First it enables them to maximise the amount that can be withdrawn tax free if Katherine wants to make withdrawals before age 60 - remember withdrawals are only tax free for those aged 60 or more. Those aged between 55 and 60 can withdraw only the first $180,000 of the taxable component tax free but, for them, the exit tax of 16.5% remains on the balance.
If they decided it was appropriate, he could even work until age 75 and keep up the salary sacrifice/spouse split strategy going. This would keep him in a lower marginal tax bracket while funding a major part of the household expenses through tax free withdrawals from her super.
As always, the key to good investment is the flexibility.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com.