Re-visiting the super re-contribution strategy [CPD Quiz]

08 February 2018

Close up of a middle-aged man thinking about super re-contribution

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

With the anti-detriment payment no longer available where lump sum death benefits are paid in respect of clients who pass away on or after 1 July 2017, interest levels in the super re-contribution strategy, have been renewed.

This article is for educational purposes only and is no longer available for CPD hours.

Prior to 1 July 2017, the re-contribution strategy was often overlooked due to the negative impact that a reduced taxable component had on anti-detriment payments, which may have been payable to a spouse or child of the deceased.

However, as the anti-detriment payment is no longer available where lump sum death benefits are paid in respect of clients who pass away on or after 1 July 2017, interest levels are likely to be renewed.

Benefits of the re-contribution strategy

The re-contribution strategy involves withdrawing superannuation benefits, which include taxable component, and re-contributing these monies as a non-concessional contribution (NCC), which forms part of the tax-free component – the primary aim being to convert taxable component into tax-free component.

  1. Estate planning benefits

The taxable component of a lump sum superannuation death benefit is taxed at a maximum rate of 17 per cent when paid to a non-tax dependant (or 15 per cent where paid via the estate, as no Medicare levy is payable)1.

Conversely, the tax-free component is received completely tax-free regardless of who the beneficiary is.

Therefore, converting taxable component into tax-free component reduces the amount of tax payable where a death benefit is paid to non-tax dependant beneficiaries.

A non-tax dependant beneficiary typically includes: adult financially independent children, siblings, nieces and nephews, and grandchildren.

  1. Income stream benefits

People who have retired on or after reaching their preservation age, but who have not yet reached age 60, will pay tax on the taxable portion of their income stream payments at their marginal tax rate, less a 15 per cent tax offset.

Conversely, any tax-free component of an income stream payment is non-assessable, non-exempt income and received completely tax-free regardless of age.

Where possible, it makes sense to maximise the amount of tax-free component in a client’s super account before commencing an income stream.

How does the re-contribution strategy work?

The re-contribution strategy involves withdrawing some (or all) of a client’s super benefits and re-contributing these funds as a NCC.

Step 1: Withdrawing money from superannuation

To access super as a lump sum, a client must either have unrestricted non-preserved benefits (UNPBs) or have met a condition of release. Commonly, the relevant condition of release will be retirement.

Transition to Retirement

Importantly, the transition to retirement (TTR) condition of release does not allow for the release of a lump sum benefit and therefore, cannot be used for a lump sum re-contribution strategy. That is, TTR only allows preserved benefits to be released as a non-commutable income stream – with a maximum annual income payment of 10 per cent.

Despite this, a TTR income stream (TRIS) can be used to undertake a gradual re-contribution strategy. Broadly, this involves taking TRIS income payments above the level that is otherwise required to meet income needs, and re-contributing excess income as a NCC – gradually converting the taxable component into a tax-free component.

Proportioning rules

Superannuation benefits must be withdrawn from their tax components on a proportionate basis. That is, if a benefit contains both taxable and tax-free components, it is not possible to withdraw only the taxable component.

Regardless of the components withdrawn, if the client has reached age 60, withdrawals from a taxed super fund will be completely tax-free. In these circumstances, the amount to be withdrawn is limited to the amount that can be re-contributed under the available NCC cap.

Conversely, if a client has reached preservation age, but is not yet age 60, tax on the withdrawal must be considered. In these situations, it is prudent to limit the amount of taxable component withdrawn to the client’s remaining low rate cap. The low rate cap for the 2017-18 year is $200,000.

To calculate the optimal total withdrawal benefit for a client aged between their preservation age and 60 where both tax-free and taxable components exist, apply the below formula:

Remaining low rate cap

Taxable percentage

This will result in a total withdrawal amount that contains a taxable component equal to the remaining low rate cap amount with a corresponding amount of tax-free component.

Indirect consequences of withdrawal

Where a client has reached preservation age, but is not yet age 60, there are often indirect consequences when withdrawing the taxable component because the taxable component withdrawn (even if within the low rate cap) must be added to that client’s assessable and taxable income for the financial year.

Whilst not impacting the marginal tax rate the client will pay on their other income, the inclusion of this amount in their assessable and taxable income can affect their entitlement to receive certain tax offsets and concessions, such as the low income tax offset, family assistance benefits, spouse contributions tax offset and government co-contribution.

Step 2: Re-contributing the proceeds to super

Once the funds have been withdrawn, they must subsequently be re-contributed to super. As such, the client must:

  1. be eligible to contribute into super; and
  2. have sufficient room available on their NCC cap to make the contribution.

Eligibility to contribute

Any client under the age of 65 can contribute into super, regardless of whether they are working.

However, people aged 65 to 74 must meet the 40/30 work test2. Further, those who have reached age 753 will not be able to re-contribute at all, even if they continue to work.

NCC cap

Broadly speaking, NCCs are limited by the NCC cap of $100,000 per annum, or if eligible for the bring-forward provisions, up to $300,0004 over three years. Before making an NCC, it is important to check the client’s contribution history to ensure that the bring-forward provisions have not already been triggered in previous years.

Further, NCCs are not permitted where the client’s total super balance (TSB) is more than the general transfer balance cap ($1.6 million for the 2017-18 financial year) on 30 June of the preceding financial year. Also, where the client has a TSB between $1.4 million and $1.599 million, the maximum bring-forward amount is reduced.

Planning point: A client’s TSB is assessed on 30 June of the previous financial year. So, if during the financial year, it appears that due to their TSB, a client’s ability to make NCCs in the following financial year will be impacted, it may be worthwhile considering withdrawing an amount from the client’s super before 30 June. The amount withdrawn should be sufficient to reduce the client’s 30 June TSB to below a target threshold ($1.4 million, $1.5 million or $1.6 million depending on the circumstances).

When considering a re-contribution strategy for a member of a couple, it is also worthwhile considering the ability of the client’s spouse to contribute. This can also be a beneficial consideration in equalising superannuation balances across couples, particularly in situations when one member of a couple has benefits approaching, or exceeding, $1.6 million.

Possible future contributions

While the re-contribution strategy involves recycling existing super money, essentially using up the client’s NCC cap but not introducing new money into the super environment, before undertaking a re-contribution strategy, it’s important to ascertain whether the client intends to make future NCCs to super. For example, this can be from existing capital, inheritances, sale of non-super assets or other financial windfalls. This is to ensure sufficient cap space is available when required.

Superannuation re-contribution strategy example

Brian (age 57) is single after his wife passed away several years ago. He has two independent children – Henry (age 37) and Lisa (age 34).

Brian recently retired and wants to commence an Account Based Pension (ABP) with his super balance of $600,000. This balance consists of $550,000 taxable component (91.67 per cent) and $50,000 tax-free component (8.33 per cent).

He also has an investment property providing gross rent of $20,000 per annum, with expenses of $5,000 per annum.

To meet living expenses, Brian needs around $50,000 after-tax per annum.

Brian has a valid binding death benefit nomination, leaving his super benefits equally to Henry and Lisa.

Applying the re-contribution strategy

Brian’s adviser recommends a re-contribution strategy to improve both the tax effectiveness of his ABP and eventual death benefit to Henry and Lisa.

The process for Brian’s re-contribution strategy is as follows:

Step 1: Work out the tax-free/taxable proportion of Brian’s current superannuation balance (Table 1).

Table 1: Step 1

Component Dollar value ($) Percentage value (%)
Tax-free $50,000 8.33%
Taxable $550,000 91.67%
Total $600,000 100.00%

Step 2:
Apply the tax-free/taxable percentages to calculate the optimal withdrawal amount.

In Brian’s case, the amount of taxable component withdrawn should be limited to his remaining low rate cap of $200,000, as he has not yet reached age 60. Therefore, the total amount to be withdrawn will be worked out as follows:

Remaining low rate cap

Taxable percentage

= $200,000 / 91.67%

= $218,174

Brian’s total withdrawal amount of $218,174 will comprise a taxable component of $200,000 and tax-free component of $18,174.

Note: Despite not paying tax on the $200,000 taxable component withdrawn, this amount will be included in his assessable income for the year, potentially impacting tax offsets and concessions.

Step 3: Re-contribute the net proceeds into superannuation.

The net proceeds of $218,174 are re-contributed into super as an NCC. This NCC is added to Brian’s remaining tax-free component, resulting in new components within his super fund as outlined in Table 2.

Table 2: Step 3

Component Dollar value ($) Percentage value (%)
Tax-free $250,000^ 41.67%
Taxable $350,000 58.33%
Total $600,000 100.00%

^ Original tax-free component of $50,000 less the tax-free component withdrawn of $18,174 plus the re-contributed NCC amount of $218,174.


  1. Income payment benefits

As there is less tax payable, due to the increased tax-free percentage, Brian will now only need to draw $35,717 per annum from his ABP (instead of $38,324) to achieve an after-tax income of $50,000. See Table 3.

Table 3: Re-contribution

Before re-contribution ($) After re-contribution ($)
Pension income $38,324 $35,717
– Tax-free $3,194 $14,882
– Taxable $35,130 $20,835
Net rent $15,000 $15,000
Total gross income $53,324 $50,717
Less tax-free $3,194 $14,882
Taxable income $50,130 $35,835
Less: tax and Medicare levy payable $3,324 $717
Total net income $50,000 $50,000
  1. Estate planning benefits

If Brian were to die today, before implementing a re-contribution strategy, Henry and Lisa would pay a combined maximum of $93,500 tax on the death benefit (i.e. $550,000 x 17 per cent) – reducing the net benefit available for distribution to $506,500.

If Brian were to die after undertaking this re-contribution strategy, they would only pay $59,500 (17 per cent x $350,000) tax on the death benefits – a $34,000 improvement.

Note: When Brian turns 60 (and once the three-year NCC bring-forward period has reset), he could undertake another re-contribution strategy to further improve the tax-free component. Whilst he must still withdraw proportionately from the taxable and tax-free component, any benefits received after turning 60 will be tax-free (from a taxed fund).

Enhancing the strategy

Brian could consider re-contributing the $218,174 into a separate super account and commencing a separate ABP with this amount. Brian would have two pensions running side-by-side, as shown in Table 4.

Table 4: Pensions running side-by-side

Pension 1 Pension 2
Component Dollar value ($) – Percentage value (%) Dollar value ($) – Percentage value (%)
Tax-free $31,826^ – 8.33% $218,174 – 100.00%
Taxable $350,000 – 91.67% $0 – 0.00%
Total $381,826 – 100.00% $218,174 – 100.00%

^ Original tax-free component of $50,000 less the tax-free component withdrawn of $18,174.

This strategy could benefit Brian in the following ways:

  • Brian could draw the minimum income payment from Pension 1 and meet the remainder of his income needs by drawing from Pension 2* (100% tax-free component). This would further reduce the amount of tax payable while he is under age 60, as a higher proportion of his overall ABP income is tax-free. This also results in the taxable component being depleted quicker than if the tax-free and taxable components were combined in one pension.Further, Brian may wish to consider investing the 100 per cent tax-free ABP in growth assets, with the ABP containing taxable component in non-growth assets.Overall, this would also maximise the amount of tax-free component left to Lisa and Henry, once Brian passes away.
  • It would allow him to maximise the effectiveness of any future re-contribution strategy. That is, he could withdraw a larger amount of taxable component from Pension 1 than if the pensions were combined (i.e. 91.67 per cent versus 58 per cent).
  • Earnings within an ABP consisting of 100 per cent tax-free component at commencement, will be entirely allocated towards the tax-free component.

Too late for a re-contribution strategy?

Some people fail to undertake a re-contribution strategy until it’s too late and they can no longer contribute to superannuation (e.g. they are aged 65 or over and no longer meet the work test).

Here, an alternative strategy for estate planning purposes is to withdraw super or pension benefits tax-free whilst alive – leaving proceeds to non-dependant beneficiaries through the estate or gifting them to beneficiaries whilst still alive.

However, consideration must be given to potential tax and social security implications.

Tax consequences

Whilst the actual withdrawal of super and pension benefits (from a taxed source) will be tax-free, the proceeds will need to be invested outside of the superannuation environment. Determining how these earnings will be taxed is important, as the client might still have several years to live.

For the 2017-18 year, people who have reached Age/Service Pension age can earn up to $32,279 per annum tax-free (or $57,948 per annum split equally between members of a couple) before paying tax, due to the operation of the Seniors and Pensioner Tax Offset (SAPTO).

Receiving fully franked dividends can also help to reduce actual tax payable on assets invested outside of super.

Social security consequences

The social security consequences of a super or pension withdrawal prior to death should also be considered.

Where an ABP is a pre-1 January 2015 grandfathered ABP, any commutation will not be counted as income. However, the favourable income test treatment will be reduced (i.e. a commutation triggers a re-calculation and reduction of the Centrelink ‘non-assessable portion’).

A full commutation of a pre-1 January 2015 ABP will result in a complete loss of grandfathering.

Withdrawing money from accumulation phase, or from an ABP subject to deeming, will also not be counted as income. However, the social security implications of the subsequent investment should be considered. For example, if the proceeds are invested in a bank account, the balance will be counted as an asset and deemed as a financial investment for income test purposes.

If the proceeds of the super/pension withdrawal are gifted to beneficiaries prior to death, the deprivation (gifting) provisions will need to be considered.

Finally, if the individual is not eligible for the Age Pension but eligible for the Commonwealth Seniors Health Card (CSHC), it is important to keep their income below $52,796 for single people and $84,472 (combined) for a couple, so that the card is retained5. Some people may also have a pre-1 January 2015 grandfathered ABP for CSHC income test purposes, which would be lost if the ABP is stopped.

Robert Simon is Technical Strategy Manager at AMP.



  1. Assumes the death benefit is paid from a taxed source and does not contain any insurance component.
  2. The person must have been gainfully employed for at least 40 hours over no more than 30 consecutive days in the financial year the contribution is made. This work should take place before the contribution is made.
  3. Unless the work test is satisfied and the contribution is made within 28 days following the end of the month in which the person turns 75.
  4. The amount of NCCs a member can contribute also depends on whether they have a transitional bring-forward amount calculated on 1 July 2017.
  5. Current until 19 September 2017.



To answer these questions for your 0.5 CPD hours, go to

1. Boris (age 57) has recently fully retired and wants to commence an ABP. He has preserved superannuation benefits of $400,000, consisting of 25 per cent tax-free component ($100,000) and 75 per cent taxable component ($300,000). He has never withdrawn any money from superannuation previously. You advise Boris as follows:

  1. He can withdraw the entire account balance of $400,000 tax-free.
  2. He can withdraw an amount of $266,667 tax-free.
  3. He does not need to draw the tax-free and taxable component proportionately.
  4. The total amount he can withdraw tax-free is $300,000.

2. On 30 August 2017, Benjamin (age 61) has $1.2 million in superannuation of which $400,000 is the tax-free component and $800,000 is the taxable component. He has recently fully retired and has not made any NCCs for over five years. If he withdraws $300,000 from his super as part of a re-contribution strategy, what amount of this withdrawal will come from the taxable component?

  1. $300,000.
  2. $200,000.
  3. Nil.
  4. $100,000.

3. Which of the followings statements are incorrect?

i. A former spouse of the deceased is a non-tax dependant.

ii. A child under age 25 is always a tax dependant.

iii. Where the deceased estate receives a super death benefit from a taxed source (no insurance) which is to be paid to a non-tax dependant, the executor must remit 17 per cent tax on the taxable component to the ATO.

iv. The low rate cap only applies to withdrawals of taxable component made between preservation age and 59.

  1. None of the above are incorrect.
  2. All the above are incorrect.
  3. i, ii and iii.
  4. i, ii and iv.

4. Which of the following are considerations when recommending a superannuation re-contribution strategy?

i. Where the client is under age 65, whether they have met the retirement condition of release.

ii. Any additional funds that the client might wish to contribute to super as an NCC in the future.

iii. The client’s total superannuation balance.

iv. Where the client is age 60, the amount left on their low rate cap.

  1. i, iii and iv.
  2. ii only.
  3. i, ii and iii.
  4. All the above.

5. Peter (aged 61) has recently retired. He has not made any NCCs in recent years. On 30 June 2017, Peter had a total superannuation balance of $1.7 million. Peter can undertake a $300,000 re-contribution strategy in the 2017-18 year without incurring any tax. True or false?

  1. True.
  2. False.

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