The re-contribution strategy can be utilised to reduce the taxable portion of your superannuation benefits passed onto your beneficiaries following the death of an SMSF member.

Superannuation benefits  in an SMSF are categorised into tax-free and taxable components. A re-contribution strategy works by withdrawing  a large sum of superannuation from a member’s fund and a re-contribution of the funds as non-concessional contributions. The updated superannuation balance will contain the same funds yet will be considered a tax-free component.

This strategy can be implemented if you are able to meet a condition of release in order to draw the lump sum and also are eligible to make a contribution back into your super. Re- contribution is suitable for those aged between 60-65 as withdrawals are tax-free, regardless of the tax components.

Re-contribution can also be beneficial for those under 60 and commencing a retirement income stream as the increasing tax-free component of your income stream allows for a reduced tax payable, consequently increasing your after-tax income.

However, caution must be exercised for individuals aged between 55-59 accessing the scheme as withdrawals may be taxable and are dependent on the components of your superannuation. Using the re-contribution scheme may not affect your marginal tax rate, however, it can affect entitlements to certain tax offsets and concessions.

Ultimately, the re-contribution strategy can be a beneficial  way to reduce or eliminate tax from an income tax and estate planning perspective provided members can meet the necessary requirements.