SMSF: Good news for accumulation fund members

The government has revived its 2003 proposals to allow spouses to split SMSF contributions. There are some changes to the original proposal.
 

Original 2003 proposal

You may recall that in 2003, the Federal Government introduced legislation into Parliament designed to allow members of accumulated funds to split future personal and employer superannuation contributions with their spouses (both married and de facto couples were to be eligible). That legislation:

  • proposed an 'annual split' model with contributions made in the previous year able to be split between a member and his or her spouse
  • required a request for a contributions-split to be received between 1 July and the following 1 April in relation to contributions made in the previous financial year
  • provided for splitting by transferring a member's benefit to an account set up for his or her spouse (in the same or a different fund)
  • compelled funds to offer contributions-splitting
  • provided that the transfer would be treated as a contributions-splitting eligible termination payment (ETP), and an ETP rollover for the receiving spouse
  • allowed for a maximum split of 70% of deducted (or employer) contributions
  • ensured that notices of intention to claim a tax deduction for eligible superannuation contributions could not be lodged if a contributions-splitting application has been made.

These proposals lapsed when the 2004 federal election was called.

New proposal

From Budget Night 2005, these changes came back on the agenda. Draft regulations were released by Treasury on 12 October 2005. The draft regulations were open for comment until 11 November 2005.

The draft legislation implements the above measures but differs in some respects:

  • proposed an 'annual split' model with contributions made in the previous year able to be split between a member and his or her spouse
  • a request for a contributions-split may be made any time in the following financial year
  • provides for splitting by transferring a member's benefit to an account set up for his or her spouse (in the same or a different fund)
  • superannuation funds will not be compelled to offer contributions-splitting
  • provided that the transfer would be treated as a contributions-splitting eligible termination payment (ETP), and an ETP rollover for the receiving spouse
  • all contributions made after 1 January 2006 will be splittable contributions except for specified amounts in respect of which Treasury says there is a risk they contain amounts related to a number of years' service (such as a previously rolled-over amount)
  • ensured that notices of intention to claim a tax deduction for eligible superannuation contributions could not be lodged if a contributions-splitting application has been made and not rejected by the trustee.
  • the tax liability for surchargeable contributions included in a contributions-splitting ETP has been abolished

All being well, the draft legislation will be passed before the end of the year. However, you should note that if the draft legislation is passed, contributions made between 1 January and 30 June 2006 would not be "splittable" until 1 July 2006. We will keep you updated on any new developments.