Superannuation payment splits pursuant to financial agreements when parties have been separated for less than 12 months and the member’s total withdrawal value exceeds the low rate cap amount that financial year
Each financial year, the Australian Taxation Office sets a ‘low rate cap amount’ which is a limit on taxable components for lump sum superannuation payments that receive a low rate of tax. This low rate cap amount applies to persons who have reached the preservation age but are under 60 years. The reason why low rate cap amounts are imposed in this way is to prevent people who are not yet retired having the ability to withdraw their superannuation savings early as there are significant tax benefits that apply to people who withdraw lump sum superannuation payments below the low rate cap amount.
The low rate cap amount for the 2019/20 financial year is $210,000.
Section 90XQ of the Family Law Act 1975 applies to declarations in financial agreements in matters where the total withdrawal value for the superannuation interests of the member spouse is more than the member spouse’s low rate cap amount for the income year. Sections 90XP(3) and (8) make clear that if section 90XQ applies to the declaration, then the declaration must state that:
a) The spouses are married (or lived in a de facto relationship);
b) The spouses separated and thereafter lived separately and apart for a continuous period of at least 12 months immediately before the declaration time; and
c) In the opinion of the spouses making the declaration, there is no reasonable likelihood of cohabitation being resumed.
If the above requirements are not met, the relevant superannuation fund cannot agree to any proposed payment split and as such, any provisions in a financial agreement which provide for the same are void.
If finalising property settlement via a financial agreement, no such provision for superannuation payment splits can be made unless the parties are separated and have lived separately and apart for a continuous 12-month period before signing the declaration.
Interestingly, no such restrictions apply to court orders for superannuation payment splits where the member’s total withdrawal value exceeds the low rate cap amount. Therefore, parties who have been separated and living apart for less than 12-months can still achieve a superannuation payment split as part of their property settlement if orders are applied for the same.