With a Coalition Government returning to office, the grey clouds that hung over the catch-up unused concessional contribution legislation has now been lifted. With this measure having started from 1 July 2018, the prospective nature of these laws has meant that the 2019-20 financial year will be the first time where a member will be able to apply any unused amount from the previous financial year (2018-19) where their total superannuation balance (TSB) was less that $500,000 just before the start of the financial year (30 June).
With the introduction of the transfer balance cap, there has become a far greater focus on the management of member balances between spouses. The use of contribution splitting between spouses is certainly one effective tool that allows for up to 85% of concessional contributions to be split from a member to their spouse after the end of the financial year.
Who can split concessional contributions?
Contributions can be split by a member of any age, but requires their spouse to be either:
- below preservation age; or
- aged between preservation age and 65 years, but not be retired (e.g. receiving an income stream).
Once the spouse has reached age 65, they are ineligible to have contributions split into their member account.
What contributions can be split?
The following contributions are eligible to be split from a member into the account of an eligible spouse:
- employer contributions (mandated)
- salary sacrifice contributions (non-mandated)
- personal contributions where tax deduction is claimed (member-deductible)
- contributions made by family and friends (other than those made by the spouse or for a child under 18 years of age); and
- allocation from reserves that are assessable, such as allocations that meet an employer’s obligation to contribute (not applicable to SMSFs).
The above amounts are known as taxed splittable contributions.
The maximum amount of taxed splittable contributions that a member can split is the lessor of:
- 85% of the concessional contributions for that financial year; and
- the concessional contributions cap for that financial year.
How does the unused concessional contributions interact with contribution splitting?
The interaction of the unused catch-up concessional contribution rules will now allow for a higher amount to be split to a spouse where part of the concessional contribution cap has not been utilised by the member in the previous financial year and their TSB is less than $500,000 at 30 June of the prior year.
To understand how these laws will work, let’s take a look at the following example:
Example – unused concessional contributions
In 2018–19, Gillian’s employer contributed $16,000 into her SMSF. As Gillian’s TSB at 30 June 2019 was less than $500,000, she has an unused concessional contributions cap amount of $9,000 that can be carried forward to the following year (i.e. $25,000 – $16,000).
In 2019–20, Gillian had a salary sacrifice arrangement in place and the super contributions made for her for the financial year are as follows:
|Salary sacrifice contributions||$23,000|
|Total employer contributions||$34,000|
Gillian wishes to split her 2019–20 contributions with husband, Jack (58), who works part-time. The ability to split these contributions can occur after 30 June 2020.
Gillian completes the Superannuation contributions splitting application and provides it to the trustees, indicating that she would like to split 85% of her taxed splittable contributions ($28,900), and declaring that:
- her TSB immediately prior to the financial year is less than $500,000; and
- her concessional contributions cap for the financial year is $34,000 (the general cap of $25,000 plus the unused concessional contributions cap amount of $9,000 from 2018–19 that was carried forward).
As a result, the SMSF can accept her application and determines that it is valid because $28,900 is the lesser of both:
- 85% of the $34,000 ($28,900) concessional contributions made by her employer; and
- Gillian’s concessional contributions cap ($34,000).
The trustees arrange for the transfer of $28,900 to Jack’s member account in October 2020 after completion of the SMSF Annual Return.
Contribution splitting documents available
Smarter SMSF has contribution splitting documents available to order online that includes member application, trustee minutes and the pre-populated ATO contribution splitting form. From 1 July 2019, the contribution splitting form will also incorporate unused catch-up concessional contribution information to calculate the allowable splitting amount.