Super Withdrawal and Recontribution Strategy
Australia’s total superannuation assets are valued at $1.6 trillion which is roughly equivalent to the annual GDP. There are 32 million superannuation accounts in Australia, which are almost three accounts for every worker.
A recent treasury report estimated that a single person aged 65 and over will need $22,641 a year for a modest lifestyle and $41,169 a year for a comfortable standard of living. A couple aged 65 and over will need $32,603 a year for a modest standard of living and $56,317 a year for a comfortable standard. Further details are available at www.treasury.gov.au.
The superannuation withdrawal and recontribution strategy involves the withdrawal of super and the recontribution of the super back to the same fund.
The super withdrawal can only be done if the member has met a condition of release, such as retiring or turning 65. Super withdrawals by members over the age of 60 are generally tax free.
The super withdrawn has normally been allocated to a ‘taxable’ component as it is comprised of taxable super contributions and fund earnings. If the member dies and their superannuation balance is paid out to an adult child, the ‘taxable’ super component will be taxed at 17%.
The benefit of this strategy is that the recontributed super turns into a ‘tax free’ component in the fund. As such, if the member dies their superannuation balance can be paid to adult children tax free (thereby saving 17% tax). This strategy is complicated and expert advice is required to implement it effectively.
