Transferring to another fund may prevent splitting

Advisers need to be aware of a hidden trap when advising clients who are considering transferring their superannuation benefits from one fund to another...

The hidden trap

Once a member's benefits are transferred from one fund to another, the member cannot split contributions that formed part of the transferred amount. That is, the trustee of the new fund can offer splitting only in respect of future contributions that it receives on behalf of the member.

However, a trustee may split contributions in a particular year (as distinct from the previous year, which is the general rule) if the member's benefits are to be rolled over or transferred in that year.
Example, If a member contributes $10,000 from 1 January 2006 to 1 May 2006 and transfers all of their benefits (including the $10,000 contributions) to another fund, then the member loses the opportunity to split the $10,000 contributions.
(The member may, of course, split any contributions made to the new fund after 1 May 2006.)
However, the trustee of the existing fund could (if the deed permitted) offer the member the opportunity to split the $10,000 contributions before the benefits were transferred.

The background

ClearLaw readers will be aware that the Federal Government has introduced regulations that allow couples to split contributions made after 1 January 2006. This allows a couple to structure their superannuation account balances to reduce the likelihood of incurring additional tax as a result of one person exceeding their reasonable benefit limit in circumstances where their spouse remains well below their RBL. The maximum splittable amount for a member is 85% of their deductible contributions and 100% of the undeducted personal contributions.