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

Coronavirus and a roadmap for infected investing

As much as value investors with spare cash want to jump on undervalued companies, it's probably not the time to buy the dip in the market just yet as the US braces for coronavirus's full impact.

Why we’re not buying the market yet

The Australian market bounced back last Friday (13th) and Monday (16th) tempting analysts to call the bottom of the coronavirus scare. This is too early as the impact on companies is not yet evident.

Douglass on coronavirus: 'Expect volatility but don't panic'

As investors hit the panic button, Magellan's Hamish Douglass is staying his course, advising attendees at last week's Investor Evening to sit tight and take a long-term view.

Drawdown reductions needed for retirees - UPDATED POLICY

During the GFC, in the face of rapid falls in super balances, the minimum drawdowns required for pensions were reduced by 50% to help preserve overall retirement savings. It's time for a repeat.

What are the possible economic effects of COVID-19 on the world economy?

In a widely-quoted scenario using estimated attack and fatality rates of coronavirus, about 0.07% of the population of the US dies. That's about 230,000 people, which the market is not ready for.

Note to Australia: be more French in the COVID-19 war

Andrew Baker is well-known as a superannuation consultant. Now working in the UK, he was caught in France with his family and is in lockdown. He worries Australian policy was too slow.

Latest Updates

Latest from Morningstar

Four stages of a typical bear market - but is this typical?

Bear markets primarily caused by recession fears follow a pattern, but we have never seen anything like coronavirus. If financial stimulus and medicine prove ineffective, all bets are off. 


Small business in path of COVID-19 tsunami

The turning point in this crisis will be when the number of new COVID-19 cases starts to decrease. Until then, can we mitigate the damage to businesses and the economy so that we can snap back?


What are the possible economic effects of COVID-19 on the world economy?

In a widely-quoted scenario using estimated attack and fatality rates of coronavirus, about 0.07% of the population of the US dies. That's about 230,000 people, which the market is not ready for.

Exchange traded products

Fixed interest LIT carnage makes stamping fees worse

Retail investors in fixed interest LITs now realise some structures were not the defensive portfolios they expected, but have prices reached value? Plus it's time to act on stamping fees.


Optimism among forecasts of the COVID-19 peak

This detailed analysis of infections, deaths, drugs and vaccines includes an optimistic scenario: perhaps US and Australian infection numbers will peak in early to mid-April with a decline after.



© 2020 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 class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. 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.