Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 547

Meg on SMSFs: Is contribution splitting a forgotten strategy?

In a monthly column to assist trustees, specialist Meg Heffron explores major issues on managing your SMSF.

It often surprises me how rarely we see ‘spouse contribution splitting’ in SMSFs. Perhaps it’s more common in large APRA funds but it’s certainly not so in SMSFs.

Spouse contribution splitting is that special rule that effectively allows someone to ‘give’ some of their super contributions to their spouse. There’s a process – more on that later. Don’t confuse it with the super splitting that happens when couples separate/divorce – this particular form of splitting is all about sharing growth in super while you’re together.

It’s only possible for concessional contributions so it’s limited to the contributions counting against the smaller cap of $27,500 (such as employer contributions, personal contributions where a tax deduction is claimed). Perhaps that’s why it’s not done much – it feels quite small fry as strategies go, not something that will set the world on fire.

But my own experience is that it can really add up – my husband and I did this for years and I’ll explain why shortly.

But first a brief run down on the process.

There are broadly four steps and – of course - rules.

1. The contributing spouse’s concessional contribution

First, contributions are made for the ‘contributing spouse’ (I’ll use that term even though often we’re splitting employer contributions, so they weren’t actually contributed by that spouse). As mentioned earlier, concessional contributions can be up to $27,500 per year.

Because these contributions get taxed at 15% in the fund, the maximum amount that can be split is 85% of the contribution (say $23,375 for someone who’s had contributions of $27,500). It’s worth knowing, though, that sometimes the contributing spouse might be allowed extra concessional contributions because they’re eligible to use rules that let them look back over the last 5 years and use up any concessional contribution caps they didn’t use back then. If they can use those rules to contribute (say) $100,000 this year, then $85,000 (85%) can be split to their spouse. (They could also choose to split less – there’s no rule saying that if you want to use the splitting rules you have to give all your concessional contributions away.)

The one thing that can’t be split is any ‘excess’ contributions (contribution amounts over the cap, whatever that cap happens to be).

The only rule the contributing spouse has to meet is they need to have been allowed to make the contribution (and claim a tax deduction) or have their employer make it for them. Of course, that in itself comes with some rules (for example, people over 67 can’t make claim for a tax deduction for their personal contributions unless they meet a work test, people over 75 often can’t have contributions at all).

But as long as those rules are met, there are no other limitations based on the contributing spouse’s age, whether or not they have retired, where the contribution comes from (personal, salary sacrifice, Super Guarantee) or how much they have in super.

2. Waiting until the following financial year to split

The second step is usually…. waiting.

Generally, contributions can’t be split in the year they’re made, they can only be split in the following year. (The idea is that you look back to see exactly how much was contributed over the whole year and then do one election to split, based on the total.) There are some exceptions – for example, a contributing spouse who moves all their super to another fund would need to do their splitting before moving (you can only split if you still have the money in the fund that received the contribution).

3. Rules for the receiving spouse

The third step is that the contributing spouse makes an application to split their contributions. This is when things get slightly trickier – the receiving spouse has to meet some extra rules. They definitely have to be under 65. And if they’re over their ‘preservation age’ (in future, this will pretty much be age 60), they can’t be retired. Fortunately, the law for contribution splitting is all about being retired ‘now’. So, someone who retired in the past could ‘unretire’ if they wanted to use the splitting rules (and they don’t have to go back to work to do this). The one thing to watch is that you can’t say on the one hand you’re retired (so you can access your super) but on the other hand that you’re not (so you can use the contribution splitting rules) all at the same time.

These conditions have to be met at the time the application is made, not when the contribution is put into super.

4. Transferring the funds

Then lastly (fourth step), the super fund actually moves the money from the contributing spouse’s account to the receiving spouse’s account. This is really easy in an SMSF – just accounting entries, so the fund doesn’t need to have enough cash to make a physical transfer as long as both members are in the same fund.

So, who uses this?

Often, it’s used to even up super balances where it’s clear one member of a couple is going to have a lot more in super than the other. For example, let’s say there’s one high income earner (maxing out their $27,500 cap every year with salary sacrifice contributions) and one lower income earner (with compulsory super at a much lower rate). To make sure they still build up their super roughly evenly, they could use contribution splitting to ensure that roughly the same amounts were adding to each member’s account.

I used it differently. My husband reached his ‘preservation age’ 10 years earlier than me. So, for a long time, we ‘split’ all of my concessional contributions to his account knowing that it would mean ‘our’ super was accessible to us earlier. (And at that time, we’d even up our super balance).

Others will think about it from an age pension perspective. Super assets don’t count in the assets or income test for the age pension until they’re either turned into a pension, or the member reaches age pension age (67). That means some couples might split contributions to the younger spouse, so their super is initially kept out of sight from means tests when the older spouse turns 67.

Or what about people who want to use those special rules I mentioned earlier about ‘catching up’ on old concessional contribution caps they haven’t used in the past? They’re only possible for people with less than $500,000 in super. Someone who is rapidly approaching $500,000 might split concessional contributions to their spouse (who is either well short of this cap or already over it) to make sure they stay under $500,000 for as long as possible. The same general principle could apply for people close to other important thresholds (for example, non-concessional contributions are only possible for people with less than $1.9 million in super).

The timing can get tricky here and it’s definitely a strategy that adds value in small amounts each year rather than all at once – so something to think about early.

 

Meg Heffron is the Managing Director of Heffron SMSF Solutions, a sponsor of Firstlinks. This is general information only and it does not constitute any recommendation or advice. It does not consider any personal circumstances and is based on an understanding of relevant rules and legislation at the time of writing.

For more articles and papers from Heffron, please click here.

 

Recent Articles by this author:

5 Comments
Peter
February 16, 2024

Too bad if you divorce. Your contributions will be permanently lost and you may also lose some of your own superannuation. Not such a good investment decision. Last time I saw the statistics on divorces there is 50/50 chance it can happen to you.

Neil
February 15, 2024

I adopted this strategy also while working and my (house)wife had a low income. The balance seemed a fair thing to do given the non-salaried contribution to the family she was making, but the other dominant reason was a risk management exercise driven by a lack of trust that a government would not change rules on those with larger super balances (lo and behold, that’s what has happened under the current government).

Joseph
February 15, 2024

My wife and I have used this to great advantage over the past decades, now I am retired and in Pension phase, and this has allowed my younger high-earning wife (57) to 'retire' early.

Could you clarify whether in Pension phase (I'm 62) I can make contributions to her accumulation phase fund from any concessional contributions I make myself into my accumulation fund? I think I'm correct in thinking I can.

David B
February 15, 2024

Nice summary. We have been doing this for the past few years as my super is in pension phase, I've reached my TBC but can still benefit from concessional contributions.

Mark B
February 15, 2024

Hi Meg,
I think that you may have forgotten to mention that there is an ATO form to be completed for the splitting contribution (retained by the SMSF). Additionally, for those that do their own SMSF tax returns the transfers need to be recorded in the Section F - Member information under "Inward/Outward rollovers and transfers" (label P&Q). I accidentally recorded them as Spouse Contributions for two consecutive years causing significant problems to resolve requiring amended Tax returns to the ATO as the non-concessional cap was breached through recording it incorrectly.
I too used it to help balance my wife's Super account while still claiming a tax deduction on the contribution for myself.

 

Leave a Comment:

RELATED ARTICLES

How to prevent excessive superannuation balances

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

Super contribution splitting

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.