The announcement on the continuation of the transitional concessional contribution cap from 1 July 2012 as part of the Government’s response to the Henry Tax Review recommendations has reinstated the importance of super splitting.
The Government has extended the transitional concessional contribution cap of $50,000 past 30 June 2012 to clients over age 50 but there is a catch. Your client’s superannuation account balance (including pension interests) must be less than $500,000.
Super investors should consider using super splitting to ensure they have access to the higher concessional contribution cap past age 50.
Prior to the abolition of reasonable benefit limits, super splitting was a powerful tool to minimise excessive benefits for clients who are high income earners and/or achieved superior investment returns over time. The focus of super splitting has now changed to clients:
•with balances below $500,000;
•who will need to make concessional contributions (including salary sacrifice) above the standard concessional contribution cap of $25,000 which is reduced by employer superannuation guarantee contributions; and
•who are married or in a de-facto relationship.
Super splitting will form part of a long-term strategy for younger clients so they can gain the maximum benefit post age 50. The partner who is the lower income earner or will have an absence from the work force will certainly benefit from the strategy.
Accessing the higher concessional contribution cap past age 50 will provide the opportunity to avoid excessive contributions and a significant boost to the tax-effectiveness of a transition to retirement strategy.
Many clients may not use the whole $50,000 contribution cap. However, it is likely to be increasingly useful as their capacity to salary sacrifice is reduced by increased superannuation guarantee contribution (up to 12 per cent by 2019/2020). This alone is enough to make using super splitting worthwhile for clients looking for greater flexibility when planning for their retirement.
The Government will consult with the industry on the announced changes to superannuation, including the higher concessional contribution cap. The consultation process and release of the draft legislation will provide a clear indication of the simplicity or complexity of these announcements.
Under current rules:
•non-concessional contributions (ie personal non-deductible) cannot be split;
•where a client is intending to claim a tax deduction using an s290.170 notice of intent, they should provide this prior to completing a super splitting request to avoid losing the ability to claim the deduction; and
•super splitting is an effective strategy for couples with age differences ie split to the older spouse who will reach age 60 first in order to access tax-free benefits.
Article courtesy of IOOF adviser magazine.
For further information please contact A Grade Tax Accountants Penrith on (02) 4731-1405 offering a full range of taxation and accounting services.
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