One of the fundamental changes made to superannuation under the new system was to cut down the many components of superannuation down to two. Those being taxable concessional benefits and tax exempt non-concessional benefits. This recontribution strategy aims to increase the non-concessional percentage benefits to provide a tax benefit upon the death of the member. Taxable super benefits paid to a non-dependant are taxed at 15 per cent, tax exempt benefits are tax free. Under this strategy a super fund member takes a lump sum tax free payment after they have turned 60. This lump sum is then recontributed to the super fund as a non-concessional contribution. An account based pension is then commenced that locks in the tax exempt percentage of the member's benefits. Upon the death of the member any residual superannuation benefits passing to non-dependants are received by them tax free. The limit on how much a person can make a year in non-concessional contributions restricts the amount that can be withdrawn and recontributed. In addition some experts have raised the specter of the ATO attacking this strategy under part IVA of the tax act. I personally am less worried about the ATO being successful in using part IVA to attack this strategy for people over 60 than I was if it is used for people under 60. For part IVA to apply a taxpayer must have entered into a scheme or arrangement where the primary motivation was to gain a tax benefit. In this case the person taking the lump sum then recontributing it does not receive the benefit themselves, their heirs do.
23rd-July-2009 | 
