A re-contribution superannuation strategy involves withdrawing superannuation, paying any tax applicable, and then re-contributing back to the superannuation fund on a non-concessional (i.e. tax free) basis.
Being able to implement a re-contribution strategy therefore requires the member both meeting a condition of release, and being eligible to make a superannuation contribution.
Such a strategy will involve the member withdrawing from the super fund after reaching preservation age (from age 58) or the age of 60 (thus tax-free) and then contributing back to the fund, within allowable caps. Bring-forward balances might be utilised to enlarge the re-contribution amount.
A re-contribution strategy can enable a re-distribution of fund balances between a married couple, which can help to manage fund balances within caps.
Alternatively a cash out and re-contribution can achieve a conversion of withdrawn taxable funds to a tax-free benefit when re-contributed as tax-free non-concessional contributions.
More tax free super funds
Accumulating more tax free as opposed to taxable funds in the super fund, means that funds which are inherited by an adult, financially independent beneficiary on the death of the member (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The taxability of funds withdrawn under this strategy, and in fact whether the funds can be legally withdrawn in the first place, will depend on a number of possible factors, including (but not limited to):
- the super fund’s rules
- the member’s age and work status
- the fund’s phase and the tax status of the member’s funds (concessional, non-concessional or tax free)
Until 30 June 2017 the impact on a potential anti-detriment claim (relevant to funds in accumulation phase) would also have been considered. (Availability of the the anti-detriment deduction was removed with effect from 1 July 2017. See Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.)
Advantage after age 60
A re-contribution strategy may be advantageous for members between 60 and 75 years old, 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.
Re-contributions and post COVID-19 update
As part of the COVID-19 relief measures, members were allowed to withdraw contributions tax-free up to $10,000 within each of the 2020 and 2021 financial years, on a special early release basis.
Legislation has now been passed which requires that such early release scheme contributions be re-contributed on a non-concessional basis (i.e. non tax deductible) before any personal concessional contributions can be claimed.
The restriction applies in the period from 1 July 2021 until 30 June 2030.
Such re-contributions are also not counted towards the contributions caps,
- Sections 292.103 and 292.90(2)(iiib)
- Minister’s media release
Further information on re-contributions generally
- What is a re-contribution strategy? – Bridges Financial Services
- A fresh look at recontribution strategies [Article dated 22 September 2017]
This page was last modified on 2021-12-06