One of the more common superannuation strategies is known as the ‘withdrawal and re-contribution strategy’. It can reduce the tax your adult children may pay on any super death benefit, and can also reduce tax payable if you are planning to retire early. With changes to the contribution caps and the ‘low rate cap’ for 2014/15, here is an update on how the strategy can be applied.
Superannuation benefit components
Before we get to the strategy, a quick recap on the components of a super benefit (lump sum or pension).
Superannuation benefits comprise two components – the ‘tax free’ component and the ‘taxable’ component. In a piece of ATO word-smithing brilliance, the ‘taxable component’ is further divided into a ‘taxed element’ and an ‘untaxed element’. The vast majority of superannuants don’t have to worry about an ‘untaxed element’ (as this will only occur if you were a member of a public sector scheme or some defined benefit schemes), so we will ignore this element for the remainder of this article.