The best kept super secret: super splitting
Written by Glen James
Host of the Retire Right & money money money (formerly my millennial money) podcasts & author of The Quick-Start Guide to Investing.
What’s one of the best kept superannuation secrets: super splitting. Let’s unpack it.
What is super splitting?
Put simply, super splitting lets you transfer some of your concessional (pre-tax) super contributions to your spouse’s super. Each year, you can split up to 85% of a financial year's taxed splittable contributions (like employer or salary sacrifice contributions) into your partner’s fund. It's done via a form (usually an ATO one or one your super fund provides), and it doesn’t change the tax treatment of the money.
Why would you do it?
A few good reasons:
Your partner isn’t working or contributing to their super right now, maybe they’re on parental leave or earning less.
You want to access super earlier. If your partner is older, splitting to them might mean access to that money sooner.
You're managing thresholds, like staying under the $500k cap for bring-forward contributions or under the new $3 million super tax.
A few rules to know
You can only split concessional contributions, not investment returns or non-concessional (after-tax) amounts.
It’s only available if your partner is under preservation age (usually under 65 and not retired).
The contribution has to be from the previous financial year. So if you’re reading this in July, now’s the time to act.
Why this matters
If you’re building wealth as a couple, especially with one of you taking time off or earning less, this is a simple move that can help balance things out. It’s not complicated, it’s not dodgy, and it might mean more choice for you both down the track. If your grown kids are just starting families or one of them is pausing their career send this to them. This is a major win for primary caregivers whose career and earning potential is impacted by tapping out of the workforce to have babies. Love it!
As with all things tax it’s worth reading up on the details to ensure you meet the criteria, so have a read of the ATO’s info on this.
Community question
Community member says: My children have asked me and my husband to be a parental guarantor as they buy their first home. I’m a bit nervous about it. I don’t understand the implications and I’m concerned about how it will impact us financially. Can you share any information?
Glen says: Absolutely! These kinds of situations are becoming more and more common as property prices sky rocket, so thanks for asking this question, the whole community will benefit from this.
As a guarantor, you can help a family member secure a loan by using the equity in your home as security. This is a temporary arrangement where you don't need to provide any cash up front, but you must agree to take on the financial obligation alongside the borrower. If the borrower defaults on their loan repayments, the lender has the right to sell the borrower's property. If the sale doesn't cover the full debt, the lender may then seek compensation from you, the guarantor, by using the limited value of your home provided as security. On paper, this could potentially lead to the sale of your property to recover the lender's money. But it's unlikely. Generally, the worst case scenario would be the amount owing would be put as a mortgage back on your home. This is actually a very low risk way to help your kids get into their home sooner. Just make sure your kids get income protection insurance, if they couldn't work. This will also lower the risk.
The equity you offer as security doesn’t have to cover the entire loan amount—just enough to help the borrower avoid Lenders Mortgage Insurance (LMI). Typically, this means keeping their loan-to-value ratio (LVR) below 80% and negotiating a limit on the amount you guarantee.
It's crucial that both you and the borrower seek specific legal advice before entering into a guarantor arrangement.
Let’s use an example to demonstrate how this works in real time. For the sake of simplicity, I’ve left out transaction costs.
Example
Your kids:
- value of property they’d like to purchase: $600,000 ($120,000 deposit / security needed or 20%)
- their approved borrowing amount based on income (serviceability): $600,000
- their current deposit savings: $30,000 (5% deposit)
You as the guarantor:
- value of your property: $900,000
- offered equity for your kids to use as security: $90,000 (15%)
If the borrower hasn't saved a 20% ($120,000) deposit and only has a 5% ($30,000) deposit, you, as the guarantor, would need to cover the remaining 15% ($90,000) by providing security through the equity in your property. This arrangement allows the borrower to secure the loan without paying LMI. This is not a cash transaction, it's security against your home.
Once the borrower’s property reaches an 80% loan-to-value ratio (LVR), you can be released from your guarantor obligations, allowing the borrower to manage the mortgage on their own. However, this release must be approved by the bank and confirmed in writing.
If you’d like to dive deeper into this, I made a video on this topic that may help break it down into more detail for you. Watch it here.
We work with a mortgage broker called Sphere Home Loans who work with a lot of podcast listeners all across Australia. If you would like to discuss your options, please reach out to them here.
I hope this has helped you, let me know if you have any further questions!