Details matter when splitting your super to keep below the threshold

SUPER splitting was introduced to increase the superannuation of non-working spouses. It was also used as a way of ensuring a working spouse did not exceed the superannuation reasonable benefit limits that existed at the time. If over 50s want to maximise their super contributions, super splitting could be a way of keeping below the new $500,000 threshold.

Q I have read that you cannot contribution-split to a spouse aged over 55 if they are retired. If the spouse was always a stay-at-home mum or dad, are they technically retired if they are over 55?

A When you search the database of the Tax Office, there is no definition of retirement. In this situation, the law uses standard definitions. Websters Dictionary defines retirement as a withdrawal from ones position or occupation or from an active working life.

If a spouse has always stayed at home and run the household, this does not change once they turn 55. For a person to be considered as retired (who has always been involved in domestic duties), their activities would need to change for them to be classed as retired. If, once turning 55, they stopped doing the housework and spent their time lying by the pool, they could then be considered as retired.

Another reason why turning 55 would not result in a non-working spouse being classed as retired is that retirement or preservation age differs depending on a persons date of birth. For those born before July 1, 1960, preservation age is 55. This increases in yearly increments until it is 60 for people born after June 30, 1964.

Q I am over 50 and have two super accounts with a combined value of almost $500,000. The ATO website talks about a limit of $500 000. One is an accumulation fund worth $45,000 and the other is a defined benefit fund worth $445,000. I currently salary sacrifice about $12,000 to the accumulation account and am worried will I have to stop all of my salary sacrificing now that I am near the $500,000 value limit?

AThe $500,000 limit you are referring to is an election promise made by the Gillard government. If this promise becomes legislation, people with less than $500,000 in superannuation that are 50 or over will have a maximum super contribution limit of $25,000 more than the standard limit.

The standard contribution limit for people aged up to 49 is currently $25,000, and $50,000 for people age 50 and older. The upper limit is set to cease from July 1, 2012. If the legislation is passed, you will still be able to salary sacrifice but only up to the $25,000 limit. How much can be sacrificed will be affected by the super contribution made by your employer to your accumulation account and the deemed contribution made to your defined benefit account.

To work out how much you can actually salary sacrifice each year, you will need to contact the defined benefit fund and ask what the deemed contribution amount will be. Unfortunately, this may not be an easy task as these funds are often reluctant to provide exact estimates during a financial year.

Unfortunately, this leaves you in the position of choosing to salary sacrifice an amount that is actually less than you possibly could have contributed. This is because if you underestimate the deemed employer contribution amount and, when you combine the final deemed contribution with the other employer super contributions, this could result an excess contribution that will be taxed at 46.5 per cent.

Questions can be emailed to super@taxbiz.com.au