With more Australians retiring with larger super balances, an often-overlooked tax rule is catching many by surprise. A legal strategy called a 'super recontribution' can reduce the amount of tax paid by adult children when they inherit superannuation funds. However, due to the shrinking financial advice sector, fewer retirees know this option exists. The strategy allows retirees to withdraw and re-contribute money to their super accounts tax-free, potentially avoiding the 17% tax that usually applies upon death.
Following tax reforms introduced in 2007, retirees over 60 can withdraw super without being taxed and contribute it back as a non-concessional (tax-free) amount. When done correctly, this turns taxable super funds into non-taxable assets. This change can significantly reduce the death tax charged to adult children. However, the process is constrained by contribution caps and eligibility based on age. Without guidance, many retirees miss the opportunity to take advantage of it.
Financial advice has become more costly and difficult to access. Since 2019, the number of licensed advisers has dropped by 44%. There are now fewer than 16,000 professionals available across the country. This shortage has pushed the average cost of advice to around $4,000 a year, with some complex plans costing as much as $10,000. As a result, many retirees ignore the issue altogether and accept the tax outcome.
A single recontribution using the bring-forward rule can allow $360,000 per person to be returned to super tax-free in one year. Couples who act before the financial year ends can contribute $480,000 in just a few days by making one contribution before 30 June and another at the start of July. The savings can exceed $60,000 in tax that would otherwise be paid to the government. But if the opportunity is missed, it cannot be recovered.
This gap between those receiving informed advice and those who are unaware of the strategy is growing. While spouses are not taxed on inherited super, adult children can face a tax bill of more than $300,000 if no action is taken. Most people only learn about these rules too late, and the caps and requirements involved can confuse even those confident in managing their finances.
There is a clear need for greater public understanding. This includes not only the recontribution strategy itself, but also how superannuation rules align with estate planning, aged care and limits on contributions. Without planning or expert advice, families may lose a substantial portion of their inheritance to tax.
