Question 1

• Hi Craig,  I have some estate planning questions as my fund does not give advice on recontribution strategies.
  First question: I will be 72 later this year. I would like to use a recontribution strategy to reduce the tax payable by my superannuation non-dependent beneficiaries should I have money in super at my death. I have approximately $1.2 million in an income stream and $420,000 in an accumulation account. Under present rules would it be allowable for me to commute and recontribute $110,000 this financial year and then commute and recontribute $330,000 the next financial year?
  Second question: The reason I have split my super between an income account and an accumulation account is because if the full amount was in the income account the present drawdown rate for my age would give me much more than I require to cover living expenses. Even though accumulation account earnings are taxed at 15 per cent, I thought it better to keep all the money in super rather than draw down too much, only to have the excess spent or accumulate. Do you consider this a worthwhile strategy or is there a better option?
  Third question: What is the tax consideration for the earnings in the accumulation account? Do they add to the taxable component or the tax-free component? If they add to the taxable component then I assume the beneficiaries in Q1 have to pay tax on these amounts too?
  Cheers,  John  

Hi John,

Yes, you can make cash out and recontribution strategies right up to age 75.

The standard non-concessional contribution is now $120,000 per financial year or $360,000 if using the ‘bring forward’ rule.

So yes, you could look at doing $120,000 this financial year and $360,000 next financial year.

However, bear in mind the contribution caps as shown below: 

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It sounds reasonable that you are leaving some funds in accumulation as you don’t want to draw down too much from your pension.

One thing to consider is whether you are paying any income tax on interest and investment earnings outside of super.

As you have pointed out your super investments in accumulation are taxed at 15 per cent. Therefore, depending on whether your individual tax rate outside of super is higher or lower, this would then inform whether you should keep funds in accumulation.

All earnings within accumulation go to the ‘taxed’ component. Therefore, the taxed component will gradually increase, assuming positive earnings. This contrasts to the pension fund. The pension fund components are set, or crystallised, at commencement and don’t change regardless of earnings. Therefore, if you start a pension with 70 tax-free component and 30 taxable, all payments and earnings are set to these percentages.

If you do suffer serious ill health, you can withdraw funds from super at any time to ensure the super tax does not have to be paid by your beneficiaries. However, if you die suddenly this is not always possible, and you also need to ensure that your will is up to date.

Question 2

• I’m 71 and no longer working. In September 2023 I transferred $80,000 (almost all my savings) from a bank account into my super account that only had a $2000 balance. I’m on a part-pension and receive about $900 a fortnight from public sector super (no lump sum available). If I were to sell my home, how much could I deposit into my super account?

You can contribute $360,000 as a non-concessional (after tax) contribution to super using the ‘bring forward’ rules.

In addition, if you have had your home for 10 years or longer, and meet the other eligibility criteria, you can make a $300,000 ‘downsizer’ contribution.  So, $660,000 all up.

Question 3

• I have $200,000 in my industry super fund. If I take my super as a pension does it incur the 15 per cent lump sum tax slug?

Once you turn 60 years of age, all superannuation payments, whether via a lump sum or pension payments, are received tax-free.

If you are under the age of 60 then tax would be payable.

Although not common, if you are a member of an old-style government or corporate ‘untaxed’ fund, then some tax would be payable regardless of age.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.