Carry-forward contributions can enhance splitting strategies

The spouse must be under preservation age, between preservation age and 65 and not retired or between 60 and 65 and has not terminated gainful employment after age 60, Mr Busoli noted.

The amount that can be split is 85 per cent of the previous year’s contribution based on the lesser of the amount of the concessional contribution made or the allowable cap in the year of contribution, he said.

“Interestingly, contributions made under the increased cap provided by the 5-year unused concessional contributions rule may also be split,” he stated.

In a recent CFS FirstTech podcast, Colonial First State senior technical manager Julie Fox explained that given that the carry forward rules actually increase a member’s concessional cap, members are able to split 85 per cent of that higher concessional contribution cap.

Ms Fox gave an example of a member with an unused concessional cap of $40,0000 due to the carry forward rules.

“They could split 85 per cent of the $40,000 which would be $34,000,” she said.

However, she stressed the importance of checking the rules of the fund when planning to use an unused carry forward amount.

“Different funds may apply different rules to the amount that you can split,” she cautioned. 

Mr Busoli also noted that as the split is treated as a rollover, it does not reduce the contributions originally made for the member for reporting and contribution caps purposes.

For higher balance members, Mr Busoli explained that splitting can result in an increased entitlement to make non-concessional contributions by lowering their total super balance to under any of the three non-concessional cap pivot points.

“For lower balance members, it may provide access to the 5-year unused concessional contribution entitlement by keeping, or lowering, their total super balance to below the $500k threshold.”

Mr Busoli reminded SMSF professionals that the split can generally only occur in the year following the year of contribution.

“This means that its effect on each member’s future contribution entitlements is delayed as a concessional contribution made in the 2022 year is not split until the 2023 year so the lowering of the total super balance does not have an effect until the 2024 year, based on the total super balance at the end of the 2023 year.”