Using an Anti-Detriment Payment vs. Recontribution Strategy in your SMSF


I have used the anti-detriment payment strategy to improve death benefit payments over the years but they are dwarfed by the number of SMSFs using recontribution strategies.

Anti-Detriment vs. Recontribution

No clear winner

With the implementation of the Simple Super legislation in July 2007, many strategies have been published regarding re-contributing into your superannuation fund with the benefit of avoiding the 17% tax on death benefits to non-dependants. However this may not always be beneficial as paying no tax may result in no anti-detriment payment being received which is an additional / alternative strategy available.

The recontribution strategy involves a member of a superannuation fund, normally after age 60 or if fully retired after age 55, withdrawing a lump-sum, and then recontributing the amount back into the fund as a non-concessional contribution. The result of this process increases a member’s tax free component of their benefit and reduces the taxable portion.

The advantages of this include:

  • Members under age 60 become eligible for an increased tax-free portion on their pension;
  • Non-tax dependent beneficiaries of a deceased member’s account pay no tax on the tax-free portion but 16.5% on the balance.

There are also considerations that must be taken into account before implementing such a strategy, such as:

  • by withdrawing lump sum benefits from super below the age of 60, you will only be able to receive the first $185,000 of your taxable portion at a concessional tax rate;
  • Your ability to recontribute is restricted. For the current financial year, you may contribute up to an annual cap of $180,000. For members under 65, they may contribute up to $540,000 in a financial year by using the “3 year bring forward” rule.

An anti-detriment payment is effectively a refund of contributions tax paid by a member during the accumulation phase. It is an additional payment that may be made to an eligible dependant if a death benefit is taken as a lump sum. The anti-detriment payment is calculated based on the taxable portion of a deceased members balance so a reduction in the taxable component through a recontribution strategy will effectively reduce any anti-detriment payment available. The effect of either strategy can be seen below.

Consider the following example:

 Member with $600,000 in their account all from SG Contributions and Salary Sacrifice i.e. no Tax Free component – 100% Taxable Component. He has a son and daughter who each earn about $90,000 per annum.

 In this case not only has the deceased member’s dependant received an additional $105,882, the relevant Fund will be able to apply $705,880 in deductions against its income going forward. Where, for example, the deceased’s adult son and daughter choose to become members of the SMSF and, on average, the SMSF earns $40,000 a year in investment income, a deduction of this size could shield the Fund from tax (on concessional contributions and investment income) for over 8 years!

Anti-Detriment

Without Anti-Detriment

Tax Free Component Nil Tax Free Component Nil
Lump sum death benefit $600,000 Lump sum death benefit $600,000

Anti-detriment payment

$105,882 Anti-detriment payment Nil
Total death benefit $705,880 Total death benefit $600,000
Tax deductions going forward ($105,882/15%) $705,880 Tax deductions going forward Nil

The following table looks at the effect of implementing a re-contribution strategy on death benefits paid to a non-dependant for tax purposes (such as adult children) and a dependant (spouse) compared to an anti-detriment payment is as follows:

Strategy 1: No Recontribution Strategy (lump sum paid to adult child)

Strategy 2: No Recontribution Strategy (lump sum paid to spouse)

Strategy 3 Full Recontribution Strategy used

  Strategy 1 Strategy 2 Strategy 3
Taxable Component $600,000 $600,000 Nil
Tax-free component Nil Nil $600,000
Anti-detriment payment $105,882 $105,882  
Total benefit (pre-tax) $705,882 $705,882 $600,000
Tax payable by non-dependant $116,471 Nil Nil
Total benefit (after-tax) $589,411 $705,882 $600,000

Generally, the recontribution strategy is worth considering if the benefit is likely to be paid to a non-dependent for tax purposes, such as an adult child unless they will make use of the SMSF for their own future superannuation strategy. This is because the tax savings generally outweigh any potential anti-detriment payment they would otherwise receive.

For a spouse or dependant child, you will usually be better off relying on the anti-detriment provisions – because they pay no tax on death benefits. However this requires prior planning and willingness to pay additional administration costs and taxes on anti-detriment reserve even when you reach pension age.

Where the anti-detriment payment tax deduction causes a tax loss in the fund, the full quantum of the loss may not give a benefit to remaining members. In circumstances where for example the spouse is in pension phase, it is important to recognise that “Exempt Current Pension Income” absorbs carry forward losses (other than carry forward capital losses) before it is available to offset income of the Fund. Also, an anti-detriment reserve can affect the calculation of exempt pension income in the fund. Therefore, the full benefit of the anti-detriment may not be able to be utilized.

An alternative solution for those looking to use an Anti-detriment strategy and with a terminal illness or shorter expected life expectancy is to roll-over the member’s account to a retail or industry superannuation account provider that have a policy of making anti-detriment payments as their set up means they will have more flexibility to fund anti-detriment payments.

Another alternative for those dealing with a death of someone well before retirement age is the use of a Future Service Benefits Deduction so click on the link to read more about that.

If you believe that setting up a recontribution and/or an anti-detriment strategy could be beneficial to your superannuation fund and to the your beneficiaries, then now is the time to plan for this and put in place the appropriate structures and strategies. Contact me at our Windsor or Castle Hill offices or by phone or email if you would like to discuss your options.

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Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Skeletons in the Cupboards and Tax Man at the Door – Estate Planning Solutions for SMSF members


Here is one solution to a big problem that may become more common with blended families and increased divorce as well as de facto arrangements.     SMSF Estate Planning

Our client , lets call him , Scott (age 78) is a widower in the Hills district and he has a $652,000 account based pension (containing a 100% taxable component to keep it simple). His two adult daughters who are financially independent are noted as 50/50 beneficiaries on his non-lapsing binding death benefit nomination (see here for more details). Any lump sum death benefit they receive will be subject to 17 per cent tax. In dollar terms, this is $110,500 (calculation: $652,000 x 17%) and he wasn’t too happy about this.

Scott was advised by his specialist he has 2-3 years maximum to live due to an aggressive cancer. He threw this curly one at me to come up with a strategy as he wants to maximise his estate for his kids but also retain access to the funds while alive to fund medical and living expenses. Our strategy involves Scott taking a tax-free withdrawal from his account based pension. He then let me know about some skeletons he had in his cupboard!

Scott could retain these funds within a bank account, however the account will form part of his estate upon his death. Even though his estate will be paid predominately to his adult daughters, he is concerned about his estranged son from an affair he had in his late 50’s who might challenge the Will.

We advised that a valid alternative available to Scott is to invest into an investment bond with himself as the owner and the life insured. Since an investment bond is a non-estate asset, upon his death the funds will be paid tax-free to his adult daughters.

Both strategies will avoid the $110,500 of death benefits tax on funds paid to his daughters, however only the investment bond will ensure the funds do not become part of his estate. Scott’s two daughters need only produce a copy of his death certificate to gain access to the funds within the bond. This could also avoid lengthy delays with the administration of the estate and overcome possible estate challenges from his estranged son.

In terms of costs we were looking at foregoing the tax-free status in pension phase for the 2 years but that was far outweighed by the savings in the death benefits tax and we are actually able to wind up the SMSF  to save his children the hassle of dealing with that later.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office or choose an appointment option here 

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook Follow Liam on Google+

Top 50 Logo 12% Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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