The re-contribution superannuation strategy is that of withdrawing superannuation and then re-contributing back to the superannuation fund on a non-concessional (i.e. tax free) basis.
Typically the strategy will involve the member withdrawing from the super fund after the age of 60 (thus tax-free) and then subsequently making contribution back to the fund, within allowable caps. If desired, bring-forward balances might be utilised to enlarge the re-contribution amount.
This can enable a re-distribution of fund balances between a married couple, for example to manage fund balances within caps, now even more significant with the imposition of the transfer balance cap of $1.6 million for 1 July 2017.
Alternatively a cash out and re-contribution can achieve a conversion of withdrawn taxable funds to a tax-free benefit when re-contributed as tax-free non-concessional contributions.
A benefit of accumulating more tax free as opposed to taxable funds in the super fund, is that on the death of the member, funds which are inherited by an adult, financially independent beneficiary (e.g. adult children) won’t be taxed by the rule which only exempts death benefit super paid to a dependent.
The taxability of funds withdrawn under this strategy, and in fact whether the funds can be legally withdrawn in the first place, will depend on a number of possible factors, including the super funds’ rules, the member’s age and work status and the fund’s phase in relation thereto, and the tax status (concessional, non-concessional or tax free) of the member’s super fund components. The impact on a potential anti-detriment claim (relevant to funds in accumulation phase) should also be considered. (Note: availability of the the anti-detriment deduction is removed with effect from 1 July 2017. See Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.)
In general, a re-contribution strategy is likely to be most advantageous for members between 60 and 75 years old (from 65 to 75 there is a work test), who can legally withdraw their super tax-free, having met the age-related condition of release. Re-contributions made within the applicable non-concessional limits enable the re-contributed funds to be maintained on a tax free basis.
Because of the many factors affecting a successful re-contribution strategy, and the potential future impact on the member’s and dependents’ tax positions, the process can be far from simple, and prone to error. Professional advice is therefore highly recommended.
- A fresh look at recontribution strategies
- The Tax Office warns to be careful of inadvertent excess contributions – see here
- Death and Taxes – SMSF Alliance
- For a summary of the benefits and disadvantages of the re-contribution strategy see article “What is a re-contribution strategy?” – SMSF Partners
This page was last modified on 28 Sept 2017