Thursday, December 11 2008
Over the past few months a number of users of our website have requested for us to include a section on case studies. We are keen to be able to provide this for users of our website along with our email newsletter subscribers. To help develop this part of the website it would be great to receive user requests as to particular questions they might have regarding their financial situation. Our plan is to include a sample in each future edition of the newsletter along with copies on our website. All respondents would remain totally anonymous with the understanding that any responses provided being general financial advice only.
If you were interested in getting involved please send through an email outlining your scenario or question.
Does splitting super with my spouse still make sense?
Superannuation splitting was a key strategy used by couples to minimise tax paid on drawing down from super under the previous regime of Reasonable Benefit Limits which limited the amount each person could withdraw in a tax friendly manner.
Under the current system you are able to direct up to 85% of your tax-deductible super contributions to your spouse's superannuation account each year. Since the introduction of the simpler super regulations there are fewer reasons to undertake a superannuation splitting strategy especially if you do not plan to draw down from your assets in a major way until after you turn 60. This is because all withdrawals from the superannuation environment are received free from tax at this time.
However, there are still some circumstances whereby superannuation splitting can add value:
If either of you wanted to take a lump sum super benefit before the age of 60, both of you will have access to the tax-free threshold of $140,000. This means you can effectively withdraw up to $280,000 tax-free before you turn 60. (After 60 all withdrawals are received free from tax)
You can use contribution splitting to pay personal insurance premiums through super, which is particularly helpful if cash is tight.
Super funds are not counted under the Social Security means tests for people under Age Pension age. If you're older than your partner and you split your contributions, super assets held by your younger partner will be ignored, potentially enabling you to qualify for more social security benefits once you reach Age Pension age.
It may be worth splitting contributions towards the older partner who will turn 60 sooner and therefore be able to access their superannuation free from tax sooner.
Before taking any action it is important to discuss your exact situation with your financial advisor.