How a Superannuation Recontribution Strategy Can Reduce Tax

It may sound complicated and enigmatic to use a recontribution strategy with your superannuation funds. However, this isn’t necessarily the case, and it can be beneficial for your long-term financial planning. As the term implies, you simply take a portion of your superannuation account savings and then put them back into the super system. Superannuation recontribution strategies are all about what you, your spouse and your dependents benefit from when it comes to tax. 

How It Works

You must first fulfil the requirements for release in order to access funds from your superannuation and still make contributions. To find out if you match certain requirements, like attaining your preservation age, you will need to check with your super fund.

The Superannuation Recontribution Strategy is based on the idea that the money in your super fund may be made up of concessional and non-concessional contributions, which are pre-tax and post-tax payments, respectively. Concessional contributions refer to any funds you've paid as part of salary sacrificing, as well as any sums your employer has made as part of the mandatory superannuation guarantee contributions. All of your after-tax payments, on the other hand, are considered non-concessional contributions. 

Depending on how much of each contribution has been made, the amount you withdraw from your superannuation will be divided equally between the taxable and non-taxable sections of your fund. As a result, only the portion of your withdrawal that is made up of concessional contributions will be taxed; the portion made up of non-concessional contributions won't. Your superfund will treat the money you contribute back as a non-concessional contribution, so you will already be paying taxes on it. By increasing the amount in your fund that won't be subject to further tax when you take funds later, you have effectively reduced your tax liability.

Why Implement This Strategy?

If you want to lower the tax that will be due on your superannuation in the event that you pass away and the fund is inherited by a non-dependent, such as an adult child, a super recontribution strategy may be helpful. An inherited super benefit is typically provided as a lump amount, and the tax-related portion must still be covered. If you use a superannuation recontribution method, you might be able to cut down or even get rid of the superannuation's taxable part, which could result in less tax being paid by the beneficiary.

At Prudent Finance, we’ve been educating Australians about superannuation for years so they can be better prepared for the future. Our superannuation services will help you maximise the superannuation regulations' constant change. Request a consultation with us today.

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