Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 187

Is the super withdrawal and re-contribution strategy over?

Much is being written about what a post-super-reform world will look like. The impact in that world on the popular estate planning strategy, the withdrawal and re-contribution, has not been given much attention.

Here’s how it works

Assume I am 63-years-old and retired, with $2.5 million in super. Let’s say, in homage to one of the greatest acts of tax generosity in Australian history, $1 million is tax-free courtesy of a $1 million non-concessional contribution I made just before 30 June 2007.

If I die tomorrow and my entire superannuation balance is paid to my adult children, then they will have to pay $255,000 in tax ($1.5 million x 17%). The taxable component is subject to a non-dependant death benefit tax while the tax-free component is exempt from tax. Non-concessional contributions form part of the tax-free component.

A popular estate planning strategy is to withdraw $540,000 from my super fund which is tax-free as I am over 60 years of age. I could take this as a lump sum or as a part-pension which would not be subject to a maximum payment amount because I am over my preservation age and retired. Were I not retired, any withdrawals would probably be subject to a maximum 10% under the transition-to-retirement pension rules.

I then recontribute that $540,000 as a non-concessional contribution. I am allowed to do this because I am under 65-years-old so the three-year bring forward rule for non-concessional contributions is available. I am not subject to a work test, because I am under 65 years old. Maybe I will wait a month to undertake the re-contribution. Maybe I will do it in a couple of weeks. According to private ruling 1012443439489, the timing doesn’t really matter and I won’t offend the general anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936. The conclusion in that ruling (bearing in mind that private rulings are only binding on the Commissioner to the extent that they apply to the specific rules in relation to those specific facts), is that because any payment from my super fund is tax-free in any case, the re-contribution strategy will not provide me with any tax benefit and my financial position, therefore, will not change and there is no tax benefit. So why bother?

After the re-contribution, the tax-free amount of my $2,500,000 superannuation balance becomes $1,540,000. The taxable component of my balance becomes $960,000. Upon my death, if my entire balance is paid to my adult children, they will have to pay tax of $163,000.

With a few clicks of the mouse, I will have saved my kids $91,800. Better than bank interest, as they say.

Why is it (probably) over?

Simply put: because I already have $1.6 million in super. Schedule 3 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 introduced the requirement that an individual must have a total superannuation balance of less than (currently) $1.6 million on 30 June of the previous financial year to be eligible to make non-concessional contributions.

Actually, saying “it’s over” is probably a bit extreme. However, it’s going to be available only to those with superannuation balances under $1.6 million. And it will only be available, to any significant degree, to those with balances under $1.4m due to the limits to be placed on the use of the three-year bring forward rule (which will now, of course, only allow $300,000 rather than $540,000) as summarised in the following table as it will apply in the 2017-2018 income year.

What can we do in the lead up to 30 June 2017?

Not much really. It is what it is. Anyone in the position to undertake a re-contribution strategy might consider doing so because the opportunities to, and advantages of, doing it after 30 June 2017 are going to decrease. Even those who cannot take advantage of the three-year bring forward rule (that is, they are over 65 but still “gainfully employed”) could potentially save their adult kids $30,600 by doing a withdrawal and re-contribution of the current one-year maximum of $180,000.

It’s still better than bank interest and, who knows, depending on when you die that might even cover a year’s worth of private school fees for one of your grandkids in Sydney.


Stephen Lawrence is a Lecturer, Taxation and Business Law School, UNSW, Chartered Accountant and Member of the International Tax Planning Association. These views are considered an accurate interpretation of regulations at the time of writing but are not made in the context of any investor’s personal circumstances.


February 01, 2017

Yep. I forgot about the proportional rule. Or more correctly, overlooked it in this instance. So yes, some portion of the withdrawal would reduce the tax free amount in the fund and then increase it again with the re-contribution. Thank you, Steve, for bringing that up. I don't think in the simplified version of the facts I have here we can say exactly what the reduction in the tax free amount would be but safe to say there would be some reduction and a consequent reduction in the total tax saved on payment of the death benefit. As Daryl says, though, unless the whole fund is tax free then there is probably always going to be some benefit in it if that death benefit goes to, say, adult kids. All the other comments based on various assumptions bring in interesting ideas. Greg, I agree there is practical work to be done also. But aren't all those things you listed done with a few clicks of the mouse?

January 31, 2017

It is possible that a segregated pension setup is the background to this strategy, even if not stated.

However, I had assumed it was an accumulation account and therefore the proportioning rules at been overlooked. The reason being that further down below in the article a reference is made "with a few clicks of the mouse I have saved my children $$$".
If a client has segregated pensions, there is no way this is a simple procedure (in fact the same could be said for an Accumulation account aswell):

- letters from the member to the trustee to commute specific pensions and the associated Minutes
- assets need to be sold to fund the $540K commutation (unless there is $540K in cash, ie 21% of the portfolio? that would be a fair bit and have significantly eroded recent returns )
- Application for an account (for the re-contribution) and letters to commence new Pensions, with associated minutes, decisions on reversionary etc if applicable
- repurchase of assets
- if an Accountant or Adviser is involved and either recommends or endorses the strategy then an Advice document needs to be produced including outlining the overall costs in terms of Buy/Sell spreads or brokerage as well as time out of the market also need to be factored in as a risk (these are large transfers so the whole process could take a couple of weeks from sale , settlement, transfer out, clearing, transfer in, and repurchase of assets ).

I agree the strategy is beneficial to the member's children, regardless of whether proportioning was done correctly...but lets not underestimate the practical work involved.

January 27, 2017

The recontribution strategy will still work for balance equalisation if there is one balance less than the TBC after 1 July.

January 25, 2017

My guess interpretation of what Stephen has done is used segregated pensions whereby each pension is itself a separate entity (see ATO website for definition of). In doing so, one pension holds 100% concessional funds and the other pension holds 100% non concessional funds. It is possible to have more than one pension to hold these monies in segregated pensions but only as long as you have done so from the origins as one cannot unscramble an egg. Therefore he has withdrawn the monies from his concessional funds only (apart from his minimum pension withdrawal) and recontributed into an accumulation account and then commuted the Non concessional pension to accum, and then started a new segregated pension with those increased funds. Victoria

January 31, 2017

Good point Victoria, this is a good approach and possibly the background to the situation, however further down the page the comment is that with a "few clicks of the mouse I have saved my children $$$".

This is actually quite a project...selling assets to pay the money out and repurchasing of investments upon re-contribution (unless $540K (20%) + in cash is normal asset allocation), Minutes of trustees, paperwork for cessation and commutation of specific pensions , contributions and recommencement of pensions. For an Adviser or Accountant to implement and recommend this, it also involves an Advice document, calculation of costs such as brokerage or buy/sell spreads etc.

I agree with the article that this is a valid and worthwhile strategy for the children's benefit, however the calculation is either incorrect, or it is much more than a few clicks of the mouse when you factor in technical work, investment execution and compliance work involved.

January 25, 2017

I would have thought even if it is withdrawn in proportions (of tax fee and taxable elements) because it is then deposited back in as non concessional amount (ie a tax free amount) the effect is this 'washing' exercise is still valid as the % of tax free element is increased therefore the amount of 'death tax' is reduced compared to if you had done nothing.

Am I missing something ?

January 25, 2017

"After the re-contribution, the tax-free amount of my $2,500,000 superannuation balance becomes $1,540,000. The taxable component of my balance becomes $960,000."

Have you forgotten the proportional rule where part of the lump sum withdrawal would come from the tax free proportion of the fund?

January 25, 2017

Not so sure about the "greatest acts of tax generosity in Australian history". It's tax-free in super because you have already paid tax on it outside of super. And unless you had the extraordinary foresight of the likes of Nouriel Roubini, your $1M in June 2007 was probably looking more like $700K (or less) by late 2008. Yes, you would have largely made that back by now, but it's come back to you as.....a taxable component.


Leave a Comment:



Re-contributions another victim of Budget


Most viewed in recent weeks

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Welcome to Firstlinks Edition 467

Fund manager reports for last financial year are drifting into client mailboxes, and many of the results are disappointing. With some funds giving back their 2021 gains, why did they not reduce their exposure to hot stocks when faced with rising inflation and rates?

  • 21 July 2022

Welcome to Firstlinks Edition 466 with weekend update

Heard the word, cakeism? As in, 'having your cake and eating it too'. The Reserve Bank wants to simultaneously fight inflation by taking away spending power, while not driving the economy into a recession. If you want to help, stop buying stuff.

  • 14 July 2022

Welcome to Firstlinks Edition 465 with weekend update

Many thanks for the thousands of revealing comments in our survey on retirement experiences. We discuss the full results. And with the ASX200 down 10%, the US S&P500 off 20% and bond prices tanking, each investor faces the new financial year deciding whether to sit, sell or invest more.

  • 7 July 2022

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 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.