Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 70

Just what is a re-contribution strategy?

You may have heard about a ‘re-contribution strategy’, but do you really know what it is and how it works? Often when an adviser or accountant provides an idea that will reduce a tax liability, you accept it without really knowing how it is achieved. That’s what you pay them for – right!

Let me explain what a re-contribution strategy is.

Who is eligible?

A re-contribution strategy is where you withdraw money from your SMSF and re-contribute the money back into your SMSF. Before you can do this, you need to be able to access your money by satisfying one of the following conditions of release:

  • reached your preservation age (55 to 60 years) and retired from your employment
  • reached age 65 (working or not)
  • ceased work temporarily as a result of physical and/or mental illness
  • ceased work as a result of permanent incapacity
  • experienced a terminal medical condition
  • accessed money under severe financial hardship grounds
  • accessed money under compassionate grounds via the Department of Human Services
  • accessed money under the transition to retirement arrangements.

Of course it is unlikely that a person accessing their money under financial hardship or compassionate grounds would be considering a re-contribution strategy.

If you access money in your SMSF without satisfying at least one of the conditions of release, then you will be in trouble with the Australian Taxation Office which regulates SMSFs.

Why bother?

The two main reasons why advisers may suggest a re-contribution strategy is to:

  1. Reduce the tax payable on your superannuation pension, especially if you are under the age of 60
  2. Lower the tax payable on benefits paid to your beneficiaries in the event of your death.

Money in your SMSF is comprised of two components. One component is the tax-free component which is made up of non-concessional contributions received by your SMSF. The other component is the taxable component which is made up of concessional contributions received by your SMSF and earnings from SMSF investments. Under the superannuation and income tax laws, superannuation benefits (pension and lump sum) paid to you are subject to a proportion rule which requires your benefit to be paid in the same proportion as the tax-free and taxable components of your superannuation interest in your SMSF.

For example, if your SMSF is comprised of a 60% taxable component and a 40% tax-free component, then your superannuation benefit, when paid out, must retain the 60% taxable component and the 40% tax-free component.

A withdrawal and re-contribution strategy involves withdrawing or accessing your superannuation entitlements that consist of the taxable and tax-fee components and re-contributing some or all of the money back into your SMSF as a non-concessional contribution (i.e. all tax-free). This increases the amount of tax-free money in your superannuation account which provides tax savings if you are accessing a pension while under the age of 60. It may also mean large tax savings when you pass on your superannuation savings to your non-dependant beneficiaries after your death.

This is because the taxable component of a pension benefit received by a person under the age of 60 is taxed at the person’s marginal tax rate less a 15% tax offset. Converting the taxable component to a tax-free component increases your tax-free pension income.

When you pass away, your beneficiaries who are over the age of 18 or are non-dependant will also receive a greater portion of your death benefit without having to pay tax.

Watch that you don’t exceed your non-concessional contributions cap. In addition, if you are aged 65 to 74 you will need to be at least working 40 hours in a period of 30 consecutive days to be able to make non-concessional contributions into your superannuation fund.

It pays to understand how things work so you can better discuss with your adviser.


Monica Rule worked for the Australian Taxation Office for 28 years and is the author of ‘The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English’. Monica is presenting a series of SMSF seminars and for details see


Andrew Peters
July 12, 2014

All good points raised.

I think one of the main reasons to explore a recontribution is simply a level of protection against future legislative risk.

Over the next 20 years I'm not so sure we will see the tax concessions on pensions retained as they are today - in our Advice Business we counsel all SMSF investors about the pros and cons of recontributions, including Ramani's point about änti detriment"payments.

July 11, 2014

While the problems posed by Peter Grace may be navigated subject to deed provisions re: lump sum benefit payments and in specie contributions, the phase of the fund (accumulation or hybrid?) and age profile of members (all above 60?), the truism that nothing about tax is simple still applies.
Apart from the Cleopatran ability of ATO to change its mind any time (coincidentally when the previous position is revenue-negative, what a surprise!), recontribution hides a potential posthumous sting. The ability to claw back the contribution taxes paid, along with their compounding effect (since the later of 1 July 1988 or subsequent entry) could mean significant top-up to the lump sum death benefit, and increasing the tax-free component will reduce this figure.
As this is a rare instance of the taxman returning collected taxes for many years, it is not to be ignored.

March 30, 2015

No wonder the average man in the street cant be bothered with this stuff.

Peter Grace
July 11, 2014

The theory is wonderful but what about the need to liquidate assets to make the withdrawal and the potential tax payable as well as being out of the market whilst all this is going on. SMSF trustees holding a large percent of the fund in illiquid assets like property can't do this. And then there is the fee charged by the adviser to manage the process. And all you may end up achieving is saving the tax payable by your beneficiaries and paying it yourself. It might be easier to cash out of super once you have no remaining tax dependents - the payment is tax free after age 60 and most retirees will be able to arrange their affairs so they don't pay much tax anyway.


Leave a Comment:


Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.


2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.


Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.


What were the big stockmarket listings in record 2021?

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.


Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.