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Re-contribution strategies for superannuation are alive and well

We mentioned previously that government changes from 1 July 2022 now allow individuals to make non-concessional contributions up to 28 days after the end of the month you turn age 75. In fact, you are also able to use the “bring forward” rule, which allows you to bring forward three years of non-concessional contributions, i.e., 3 x $110,000 or $330,000 (subject to your total super fund being less than $1.48 million).

Just to explain, non-concessional superannuation contributions are monies contributed to superannuation on a post-tax basis. This means you do not claim these contributions as a personal tax deduction.Re-contribution strategies for superannuation are alive and well

Let’s take the example of Tim, who turns 75 on 1 November and has $1 million in super on 30 June 2022. Tim can put $200,000 into super on 1 July 2022 and then has until 28 December 2022 (28 days after the end of the month in which he turns 75) to put the remaining $130,000 into superannuation.

Previously, the ability to do this was also tempered by the requirement for individuals to satisfy what is known as the “work test”. The work test is satisfied if you have been gainfully employed for at least 40 hours in any period of 30 consecutive days during the financial year that the contribution was made. This is where things get a little complex; the work test applies to concessional superannuation contributions but not to non-concessional contributions. Who says superannuation rules are easy?

Re-contribution strategies for superannuation are alive and well

Remember, concessional contributions are those monies that are contributed to super by your employer, by salary sacrifice or monies that you put in personally and then claim as a tax deduction. Apologies if this is a little confusing, but I need to set the context so the next part makes sense.

So, those non-concessional contributions are not subject to the work test right up to age 75, thereby increasing the opportunity to influence a member’s tax components. What are tax components? Superannuation funds are broken into two main components – taxable components (monies that have had a tax deduction claimed on them by you or your employer) and non-taxable (generally monies contributed after tax and where no tax deduction has been claimed). The taxable components are subject to a 15% death tax if the monies are paid to adult sons and daughters of your estate who are not financially dependent.
Re-contribution strategies for superannuation are alive and well
So to mitigate this, we use a strategy where we seek to withdraw monies from superannuation where you have accounts that are predominantly taxable components and then re-contribute those monies as non-concessional contributions. Every non-concessional contribution reduces the impact of the 15% tax. To give you an example, if you have $1 million in super and it has all been through concessional contributions, then the tax paid by the Trustee of your estate would be $150,000 if the monies were going to adult children. We hope this article has prompted your thinking. If you would like to know more, feel free to reach out to us.
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