Exploring Concessional Contribution Splitting Strategies for 2022-23 Splitting concessional contributions between members or spouses can be an effective SMSF strategy. When used correctly, it may provide several benefits: Tax-Free Portion: It creates a tax-free component for the receiving spouse, similar to a re-contribution strategy. Tax Deduction: The contributing spouse can claim a tax deduction (subject […]
Exploring Concessional Contribution Splitting Strategies for 2022-23
Splitting concessional contributions between members or spouses can be an effective SMSF strategy. When used correctly, it may provide several benefits:
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Tax-Free Portion: It creates a tax-free component for the receiving spouse, similar to a re-contribution strategy.
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Tax Deduction: The contributing spouse can claim a tax deduction (subject to PSI or the 10% income test) if they are self-employed.
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Early Access to Pensions: The receiving spouse, if older, can access pension payments or a Transition to Retirement (TTR) pension earlier.
Understanding How Contribution Splitting Works
Example Scenario
To illustrate, let’s use Tony and Amanda in the 2022-23 financial year:
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Tony is 51 and self-employed.
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Amanda is 55, works part-time, and has reached preservation age.
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Tony contributes $27,500 in the 2022-23 financial year (within the concessional contributions cap).
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In 2023-24, he applies to split the contribution with Amanda.
After deducting 15% contributions tax ($4,125), the SMSF records $23,375 in Amanda’s account as a tax-free component.
Recording the Split
Since SMSFs use a pooled investment structure, no money moves between accounts. Instead, the trustee records Amanda’s entitlement on her member balance as a tax-free component for 2023-24.
Benefits for the Couple
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When Amanda turns 60, she can start a TRIS or TTR pension with tax-free funds.
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Tony still claims a tax deduction for the contribution.
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Amanda can draw income earlier from a tax-free source.
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Their adult children may also benefit through improved succession outcomes.
Key Conditions to Remember
To comply with contribution splitting rules, members must follow these conditions:
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Apply the split in the financial year after the contribution was received.
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The receiving member must be under 65 and not retired.
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A maximum of 85% of concessional contributions can be split, after contributions tax.
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Only concessional contributions (employer or salary-sacrificed) are eligible.
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A valid contribution split form must be lodged with the super fund.
Why Contribution Splitting Matters
By applying these rules, couples can:
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Balance retirement savings.
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Maximize tax efficiency.
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Enable earlier access to pensions.
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Strengthen succession planning for family members.
Final Word of Caution
Contribution splitting offers powerful benefits, but it is complex to administer. Therefore, always seek professional financial advice before applying this strategy.
Related: SMSF administration services | SMSF packages
