The re-contribution strategy is still attractive
Posted by Northadvisory on July 28, 2016
On the 3rd May 2016, the federal government announced an immediate cut to the non-concessional contribution limit. The cap is now a lifetime limit of $500k.
This cut to the non-concessional cap does affect the very popular re-contribution strategy but it still applies and it is definitely worth implementing with your SMSF. You or your independent beneficiaries could save up to $82,000 in tax if you use the re-contribution strategy under the current non-concessional cap of $500,000.
Some background information;
Your superannuation benefits are made up of two components, a tax free component and a taxable component. The tax free component is always tax free when you start taking your super benefits or when you leave your super benefits to a dependant or independent person after you die. So if you have super benefits that is 100% tax free there won’t be any tax paid anywhere, whether you start taking benefits from your super or leave it to an individual when you pass away.
The taxable component may be subject to tax. If you are under 60 and start taking a pension, the taxable component will be subject to tax. If you leave your super benefits to an independent person (adult children) the taxable component will be subject to tax.
What the re-contributions strategy does is it reduces your taxable component and increases your tax free component. It’s a very effective estate planning strategy.
If you pass away and leave $100,000 to your adult child from your super benefits and the $100,000 is made up of all taxable, the adult child will need to pay approximately $16,500 in tax. However, if the benefit was made up of all tax free the adult child will pay zero tax.
If you have any questions relating to the non-concessional re-contribution strategy then please feel free to call;
SMSF Specialist Advisor
T: 02 9984 7774
Martin van der Saag
T: 02 9984 7774
Read more Superannuation articles.