In the event of separation, splitting orders are crucial for a fair superannuation division. It is mistakenly believed that splitting orders alone are sufficient. In fact, they do not necessarily cover all legal and tax aspects. There are several steps as noted in the legislation to be complied with. This is to ensure the split is properly actioned and CGT roll-over relief functions are executed as intended.
When a relationship ends, both parties’ superannuation might be part of a family law settlement. Splitting orders specify how superannuation should be divided, whether through court orders, consent agreements or a superannuation arrangement within a binding financial agreement.
What is Member Spouse & Non-Member Spouse?
The member spouse (MS) and the non-member spouse (NMS) are key roles within the framework of superannuation splitting laws.
The member spouse (MS) is the individual whose superannuation interest is subjected to a split. The beneficiary of the split is referred to as the non-member spouse (NMS).
Legislation as noted in SISR Reg 7A.2
Neglecting to provide the necessary documentation as stipulated by the Act might give rise to legal action against consultants participating in the splitting procedure.
Non-member spouse (NMS) and SMSF Trustees should follow these 4 steps:
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Step 1
The NMS must provide the SMSF Trustee with a copy of the splitting orders and a notice under the Family Law (Superannuation) Regulations 2001 (Cth) relating to the split
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Step 2
The SMSF Trustees must then provide a “payment split notice,” formally informing both parties that the MS interest is being divided in accordance with the splitting order. Superannuation Warehouse can assist with this step.
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Step 3
The NMS must determine how to handle the split amount and inform the SMSF Trustees of this decision. There are 3 options depending on the SMSF governing rules.
- Option 1: Establish a new interest under the NMS’s name. This mean NMS becomes or continues to be SMSF Member. The split is simply allocated to the NMS’s SMSF balance without an actual transaction is carried out.
- Option 2: Roll over or transfer the split amount to a chosen regulated superannuation fund or approved deposit fund.
- Option 3: Receive the split as a lump sum. This applies if the NMS satisfies a condition of release at the time of split or the split is derived from unrestricted non‑preserved benefits.
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Step 4
Trustee approves the choice of NMS in Step 3 and carries out the split.
CGT Roll-Over Relief
Transferring asset ownership gives rise to capital gain event and there are tax implications for these events. However, with the separation event, CGT rollover relief might apply for SMSFs or another small fund transfers a CGT asset to another compliant superannuation fund as part of a payment split for the benefit of an NMS.
To ensure the intended Capital Gains Tax (CGT) roll-over relief, it is essential that well-prepared splitting documents are in order as mandated by Sec126-140(2)(c) of ITAA1997. Without these documents, the CGT relief might not apply and SMSF may encounter a tax liability and potential penalties
Frequently Asked Question
What is a Payment Split Notice and what is the time frame for issuing Payment Split Notice?
This notice explicitly states the division of the member spouse’s superannuation interest or benefit and specifies the precise amount that the non-member spouse is entitled to receive. The notice must be given if the split must be made within 28 days after the splitting order becomes operative.
