Splitting your super when you split up - what you should know

Splitting your super when you split up - what you should know

Is separation or divorce is leading you to think about divvying up your super? There's a lot to consider when doing so — not least the tax implications. Here are a few things you need to know.

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.i On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,

A consent order, or

A court order.
A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to actually sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, why not call us to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax-effective ways to boost your super

Tax-effective ways to boost your super

After a year when the average superannuation balance fell slightly or, at best, moved sideways, now could be a good time to think about ways to rebuild your savings while being mindful of tax.

With the Reserve Bank reducing interest rates to record lows and not anticipating a rise until 2024, it’s more important than ever to ensure your retirement savings are working as hard as possible.

One way to do that is by taking advantage of super, which offers valuable opportunities to tax-effectively rebuild your retirement savings.

Reducing your tax bill

If you make super contributions by setting up a salary sacrifice arrangement with your employer, for example, you can potentially reduce your tax bill while also boosting your super.

By diverting some of your pre-tax salary into super rather than taking it as take home pay, your money will be taxed at 15 per cent, rather than your marginal tax rate.

Investments made through super also enjoy a concessional tax rate of only 15 percent on any investment earnings. This compares with tax at your marginal rate, which could be as high as 47 per cent (including the Medicare Levy), on investment earnings outside super.

Claim a tax deduction

You are also able to make personal super contributions on which you claim a tax deduction.

Previously only available to the self-employed, this strategy is now available to everyone. It allows you to claim a tax deduction in your annual tax return for eligible voluntary contributions into your super account made during the financial year from your after-tax earnings.

Providing you stay under the annual concessional contribution limit (currently $25,000 a year), this can be a useful way to cut the amount of income you pay tax on.

Play catch-up with your contributions

If you have less than $500,000 in your super account, you may consider making carry-forward concessional contributions. If you haven’t fully used your annual concessional contributions caps since 1 July 2018, you may have some unused cap amounts that you could use to make a larger contribution this financial year.

Unused concessional cap amounts can now be carried forward for up to five years.

Consider non-concessional contributions

If you have more funds available and are closer to retirement, you might also consider making a non-concessional (after tax) contribution into your super account to boost the amount you have in the run-up to retirement.

Generally, you can contribute up to $100,000 a year in after-tax money. Not only is the tax on investment earnings on these contributions only 15 per cent, but they boost the income you can enjoy tax-free in retirement.

If you have a larger amount available, from an inheritance or selling an asset for example, you could even consider making a bring-forward contribution of up to $300,000 in a single year if you are under age 65.

Get the government to contribute

Another opportunity for eligible low to middle income earners is to make a personal after tax contribution of up to $1,000 and potentially receive a co contribution of up to $500 from the government. The co-contribution amount will vary depending on your income and the amount of contributions you make, but it can be an easy way to increase your super balance.

Another tax strategy to consider if your spouse or de facto partner earns less than $40,000 is to make an after-tax contribution into their super account. You could be eligible for the maximum tax offset of up to $540 if you make a contribution of at least $3,000 into your spouse’s super account, provided they earn $37,000 or less. The tax offset tapers off as your spouse’s income increases before cutting out at $40,000.

Strategic review of asset allocation

As super is a structure for investing, not an investment in its own right, it might also be a good time to take a closer look at the mix of assets in your super.

After COVID-induced market volatility, and with historically low interest rates, your allocation may have drifted away from your strategic plan.

With the right advice, tax-effective super strategies offer an easy way to rebuild your retirement savings and achieve your overall wealth creation goals.

If you would like to discuss your super or investment strategy, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


super changes add flexibility

Super Changes Add Flexbility

super changes add flexibility

Super Changes Add Flexbility

Just when you thought you had a grip on the superannuation rules, they change again. This time though, the changes are mostly positive, especially for older super members keen to top up their savings.

From 1 July 2020, changes came into effect with the potential to help retirees as well as members suffering financial hardship due to the economic impacts of COVID-19.

If you are not working you may be able to contribute to super for longer, while couples can take advantage of spouse contributions for longer. The temporary reduction in minimum pension drawdowns remains in place, as does early access to super. And if you own a business, you have a brief window of opportunity to get up to date with your employees’ super payments without penalty.

Here’s a summary of the new rules.

Work test to kick in at 67

Under changes to the work test, if you are aged 65 or 66 you can now put money into super even if you aren’t working. This gives people flexibility to make voluntary catch-up contributions for a few more years and give their retirement savings a last-minute boost.

Say you are 65 and inherit some money. You can now make a voluntary non-concessional contribution to your super account up to the annual limit of $100,000, even if you are not currently working enough hours to satisfy the work test. You can make withdrawals from this money or start a super pension.

Under the work test, which now kicks in at age 67, you must work at least 40 hours within 30 consecutive days in the financial year in which you make the contribution.

It was also proposed to allow people aged 65 and 66 at the start of the financial year to use the existing non-concessional bring forward rules. If eligible, this allows you to ‘bring forward’ up to three years’ worth of non-concessional contributions (up to $300,000) in the current financial year. Legislation must be passed before this proposal becomes effective.

Couples get a super boost

Couples also have more flexibility to grow their retirement savings later in life, thanks to recent changes to spouse contributions. As of 1 July 2020, you can contribute to your spouse’s super fund until they reach age 75, up from the previous age limit of 70.

What’s more, if your spouse (married or de facto) earns less than $37,000 you may be able to claim a tax offset of up to $540 for your contribution to their super. The offset phases out once your partner’s income reaches $40,000.

The usual non-concessional contribution limits still apply, and the receiving spouse still needs to meet the work test where applicable (outlined above).

Super pension drawdowns halved

Retirees whose superannuation has taken a hit from the COVID-19 market volatility have also been given a bit more wriggle room this financial year. The government has temporarily halved the minimum amount retirees must withdraw each financial year from their account-based super pension.

This temporary measure will help retirees who might otherwise have to sell assets at depressed prices to provide cash for their pension payments.

For example, someone aged 65 would normally be required to withdraw 5 per cent of their super pension account balance each financial year. But in 2020-21 they need only withdraw 2.5 per cent of their account balance if they wish. The minimum drawdown rate increases gradually with age, reaching 7 per cent from age 95 under the temporary rules (normally 14 per cent), as you can see in the table below. There is no maximum withdrawal rate.

Table 1: Minimum pension drawdown rates (as a percentage of your super pension account balance)

Age of beneficiaryTemporary withdrawal rate
2019-20 and 2020-21
Normal withdrawal rate
Under 652%4%
65 to 742.5%5%
75 to 793%6%
80 to 843.5%7%
85 to 894.5%9%
90 to 945.5%11%
95 and older7%14%

Source: ATO

Early release of super

Younger super fund members have not been forgotten. You can withdraw up to $10,000 from your super account this financial year if you are suffering financial hardship due to the economic impact of COVID-19. This is in addition to the $10,000 you could withdraw last financial year.

It must be stressed though, that the early withdrawal of your super should be a last resort because of the adverse impact on your retirement savings. An amount of $10,000 withdrawn early in your working life could potentially be worth many times that by the time you retire.

If, after weighing up your financial options, you wish to take advantage of this temporary measure the application period has recently been extended to 31 December 2020.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.