Superannuation rule changes present estate planning opportunity

Before July 1, 2022, a superannuation member aged 67 to 74 must have satisfied a work test to make a personal contribution to superannuation.

This was quite prohibitive for retirees and meant windfalls received later in life were not able to be added to superannuation.

From July 1, 2022, the work test requirements were removed meaning anyone can now add to superannuation up to age 74, including 28 days after the end of the month in which they reach 75.

This change presents a great opportunity for retirees, beyond the obvious benefit of adding surplus savings and windfall amounts to superannuation. At Muirfield, we have begun implementing a recontribution strategy for many of our clients.

A recontribution strategy is used to reduce the taxable component of a superannuation account while simultaneously increasing the tax-free component.

You might be thinking: isn’t my superannuation already tax free? Likely, though the benefit of this strategy isn’t necessarily for the account holder, rather it reduces the tax that may be paid by a non-tax dependant beneficiary of your superannuation account.

To keep things simple, a non-tax dependant is typically someone who is not your spouse and does not rely on you financially. In most cases, adult children are considered non-tax dependant beneficiaries.

If you pass away and your superannuation benefit is paid to a non-tax dependant, tax of up to 15 per cent (plus 2 per cent Medicare levy) may be charged on the taxable component of your account.

A re-contribution strategy is particularly effective for superannuation account holders who have a high taxable component and have a non-tax dependant beneficiary for their superannuation account. We commonly see this with retiree widows.

There are a number of elements that need to be considered before implementing this strategy including:

• Impact on Centrelink benefits
• Capital gains tax upon selling investments
• Transaction costs to sell and repurchase investments
• Superannuation access restrictions
• Superannuation contribution caps, and
• Total superannuation balance and transfer balance cap.

If you would like to understand how this may relate to your circumstances, we encourage you to contact an appropriately qualified financial adviser.

// Sponsored Content