A recontribution strategy is a smart way for a Trustee to improve the tax structure of their Super Fund. It involves withdrawing an amount from super—usually after meeting a condition of release — and then contributing that amount back into the Fund as a non-concessional (after-tax) contribution. This process increases the tax-free component of the Member’s balance, helping reduce tax on future withdrawals or death benefits, benefiting adult children or other non-dependent beneficiaries.
By reshaping how the Super Fund is made up, this strategy can enhance long-term tax efficiency and provide meaningful estate planning advantages for Members and their beneficiaries.
How the Strategy Works
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Withdraw from Super: The Trustee arranges for the Member to take a lump sum from their Super Fund. Once the Member has met a condition of release, this withdrawal is generally tax-free if they are aged 60 or older. If the lump sum withdrawn from a pension acount, a commutation TBAR normally needs to be lodged to reduce the Member’s transfer balance cap accordingly.
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Transfer to Personal Account: The withdrawn amount should be temporarily transferred to the Member’s personal bank account, usually for one or two days. It is important that this is a genuine transaction — not merely an accounting entry. The SMSF bank statement must clearly show both the withdrawal and the subsequent recontribution.
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Re-Contribute to Super: The same amount is transferred back into the Super Fund as a non-concessional (after-tax) contribution with tax-free component.
- Optional Segregation: Some Trustees prefer to place the recontributed amount into a separate accumulation or pension account (even outside the SMSF), allowing them to clearly track the newly created tax-free portion.
Benefits
A recontribution strategy can offer significant tax efficiency and estate planning benefits for SMSF Trustees:
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- Enhance Estate Planning: By increasing the tax-free component, a greater portion of the Super Fund can be passed to beneficiaries free from tax. Without this strategy, a child beneficiary could be subject to up to 15% tax (plus the Medicare levy) on the taxable part of the death benefit.
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Rebalance Between Spouses: A recontribution strategy can help balance super savings between partners. The withdrawal may be recontributed into a spouse’s fund (if eligible), creating more equal super balances.
Eligibility Criteria
The Member must have unrestricted access to their Super Fund balance, usually after turning 60 and retiring, or upon reaching age 65. They must also be under 75 years old, eligible to make non-concessional contributions, and have a total Super balance below the government threshold ($2 million) as at the previous 30 June. In addition, the current annual non-concessional contribution cap applies, and eligible Members may use the bring-forward rule to contribute up to three years’ worth ($360k) of caps at once.
Proportioning rule: Please note, under the proportioning rule, you cannot withdraw only the taxable component—any withdrawal must reflect the same ratio of taxable and tax-free components in your balance. By recontributing the withdrawn amount, that portion is reclassified as tax-free.
Overall, a recontribution strategy is appealing because it doesn’t incur extra tax for the member and it leverages existing contribution caps to lock in tax-free status. It essentially reclassifies part of the SMSF balance into the tax-free bucket, without permanently removing money from super.