Spouse contribution splitting – tips for the receiving spouse

Contribution splitting is a great strategy to help couples even up their super even when one person is building up super much faster than the other. But there are rules about the age and retirement status of the receiving spouse. Let’s unpack them.

To re-cap, spouse contribution splitting allows couples to re-organise their concessional contributions only (not non-concessional contributions). The spouse who made the concessional contribution (or had one made for them by an employer) can elect to “give” part of these (usually 85% at most, to reflect the deduction of 15% contributions tax) to their spouse.

Interestingly, there are no rules about the age and retirement status for the contributing spouse – as long as they’re allowed to make these contributions (or have some made on their behalf), they’re potentially allowed to split them to a spouse.

However, the age and retirement status of the receiving spouse matters.

For a start, the receiving spouse can’t be 65 or over. If they are, it doesn’t matter if they’re still working full time and nowhere near retiring, they can’t receive a contribution split from their spouse.

If they’re between 60 and 65, there’s another test. If they’re retired, they also can’t receive a contribution split. In this context, “retirement” has the usual definition for superannuation purposes. And when the forms are prepared to put the split into effect, the receiving spouse has to sign a statement saying they’re either too young to be retired (ie, under 60) or, if they’re between 60 and 65, they’re not currently retired.

But there are some quirks here.

First, some people retire and then stop being retired. The most common case is someone who retired by changing jobs after 60 but hasn’t stopped working. Or someone who retired under the “permanent retirement” definition but has changed their mind since and returned to work.

In this case, it’s acceptable for the receiving spouse to say they’re not currently retired (and receive the split contribution). But it’s important that’s true. It would be hard to argue if the receiving spouse recently claimed they are permanently retired in order to start a retirement phase pension but a few months later claim they’ve changed their mind. It’s obviously much easier where the retirement definition they met was simply changing jobs after reaching age 60. Then, the receiving spouse can argue they met the retirement definition in the moment they changed jobs, but don’t any more. That’s fine.

Another scenario is where the receiving spouse has stopped work and is ready to retire but hasn’t actually told the trustee. Even in an SMSF, permanent retirement depends on the view formed by the trustee as to the member’s future work intentions. So if one last contribution split was planned, it would simply be important the receiving spouse didn’t formally notify the trustee that they didn’t intend to work 10 or more hours per week in the future. They can do so after they’ve arranged the split.

And finally, what about a receiving spouse that has never worked? Don’t forget that they can’t meet the retirement definition anyway. Both definitions require ceasing a job of some kind (even in the past).

With all of this, remember the timing that matters here is when the application to split is made, not the contribution. Commonly, problems arise where the receiving spouse was under 65 when the contribution was made but turns 65 before the splitting application is lodged with their fund. That will be too late. Or similarly where the receiving spouse wasn’t retired during the year the contribution was made but retired shortly after the end of the year to start a pension – and this happened before the split occurred.

Contribution splitting is undoubtedly extremely valuable under the right circumstances. Knowing the rules helps your clients take advantage of the rules.

Contribution spitting was just one of the many topics we covered in our Super Intensive Day – if you missed out, it’s not too late to watch the recordings and earn valuable CPD as well as great strategic ideas for your clients.