What is a super re-contribution strategy?

Most Aussies usually think of contributing to super while they’re working and withdrawing it when they retire. However, in some cases, you may be able to use a superannuation re-contribution strategy. Meaning you can withdraw a portion of your super and contribute back into your super fund later. Implementing a super re-contribution strategy can ensure that you or your heirs can withdraw your super later without needing to pay any tax. Super re-contribution can also be an estate planning measure that allows a deceased person’s heirs to access their super without worrying about the tax liability. However, to re-contribute super, you need to be able to withdraw benefits and make contributions.

Usually, you can’t withdraw super until you reach the age of preservation, which can be between 55 and 60 years, or qualify for early release of your super on compassionate grounds. You’ll have to pay tax on any withdrawn amount at the tax rate corresponding to your chosen withdrawal method. If you’re aged 65 years or older, you may have to prove that you have some sort of employment before making personal super contributions. Given these conditions, not everyone may be able to utilise a superannuation re-contribution strategy.

How does a super re-contribution strategy help me save on tax?

When you withdraw your super, you’ll need to mention it on your tax return and may pay tax on some part of the amount. The part of your super that is “taxable” is usually employer contributions or salary-sacrificed super contributions. They are taxed at a concessional tax rate of 15 per cent up to a certain limit when you withdraw them. However, if you exceed the limit or if your heirs have to withdraw your super, you or they may have to pay a higher tax rate. This tax rate can also depend on whether your super fund provider paid taxes on the money. Your super fund manager should issue a withdrawal statement mentioning the components that make up your super.

Once you withdraw super and pay any necessary tax, you may re-contribute the whole amount as a non-concessional super contribution. You can later withdraw these deposits, considered taxed deposits, without paying any additional tax. Before making any non-concessional contributions, however, you’ll need to check your super balance. And before you withdraw any super, consider discussing the amount you should withdraw and the tax you may need to pay with your accountant. Remember that you may have to report super withdrawals on your tax returns, irrespective of whether you have to pay tax on them.

Can I withdraw, but not re-contribute super benefits?

You may qualify to withdraw super benefits early, or before your super fund’s preservation age, in specific circumstances. These could include circumstances such as after an accident leaves you disabled or unable to continue working. In 2020, the Australian government also permitted people who’d experienced financial hardship due to the Coronavirus pandemic early release of up to $20,000 in super. However, the Australia Taxation Office (ATO) takes a strict view on early super withdrawals. If you made a super withdrawal under such circumstances, re-contributing super at a later time could land you in trouble with the ATO. You may need to pay tax on the entire amount of withdrawn super at your marginal tax rate irrespective of whether the benefits are taxable or tax-free.

If your super balance was more than the transfer balance cap of $1.6 million at the end of the previous financial year, you might not be able to re-contribute the super in the same year that you withdrew it. You’d have to wait at least until the next tax year, and again check if your super balance fell below $1.6 million before re-contributing. Further, you may need to check if you run the risk of exceeding the transfer balance cap - and paying more taxes - when you re-contribute super. 

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