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.

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments or questions in the section below.

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.

Using your SMSF to plan now for a future downsize and a seachange


Living in Sydney and I have many clients who dream of retiring up or down the coast or inland to more suitable and often slower paced areas of Australia.  SMSF Property Investment

Many plan to downsize and sell their Sydney home in retirement and purchase a place on the coast. The issue that arises is that they often feel they have identified the area or actual property they want to live in during retirement and want to secure it now. Others are afraid that the selected area will be priced out of their budget in future years with so many baby boomers retiring over the coming decades.

So here is a solution we used for a few of our clients wanting to plan ahead and reduce that risk.

Jeff & Joan (of course it’s not their real names!) came to see me in 2006 and they had a lovely house in Hills District of Sydney but it was 2 storeys and with Jeff’s knees playing up they knew that they would need a single level property later. Also they planned to move to Lake Macquarie to be nearer their children and hopefully future grandchildren in Newcastle in retirement.

They could not borrow to buy a property in their own names as they had business and family commitments that reduced their borrowing capacity.

They had a decent sized SMSF and could afford to buy a property as part of their diversified strategy so we put this strategy to them.

They identified a property they would like in Lake Macquarie that ticked all the boxes and was currently tenanted. We revised the SMSF Investment strategy and put the trustees reasoning for investing in residential property and the projected returns and maintained a diversified investment portfolio with the other funds. We also looked at options and exit strategies as part of the analysis and the investment stood up as a sound one for their portfolio.

There SMSF purchased the property in early 2007 for $400,000 and it was a sound investment over the following 5 years providing a reasonable rental income and about 3% capital growth per year over that time which was decent for a single level property just one street back from the water.

In 2012 Jeff decided to retire and Joan agreed to reduce her hours. They put their house in Castle Hill on the market and gave the Lake Macquarie Tenants 4 months notice which they felt was fair. Their Sydney property sold a few months later for $850,000.

We got a professional valuation on the Lake Macquarie property and it was valued between $480,000-$500,000, so we agreed a market value of $490,000. The couple elected for a lump sum pension commutation from their SMSF paid “in-specie” as the Lake Macquarie property from their Self Managed Super fund and because it was in NSW they did have to pay Stamp Duty on the transfer. I believe on Victoria and WA there  are exemptions that apply on such transfers as long as it is the same Beneficial Owners after the transaction. We sought legal advice here in NSW and were unable to get this concession.

The couple then used $150,000 to renovate the property and kept $150,000 in Term Deposits in their own name. This left approximately $500,000 which they contributed as Non-Concessional contributions equally to the SMSF.

What were the benefits?

  1. Secured their choice of future retirement home earlier.  The relief of having this certainty should not be underestimated by advisers.
  2. They did not over extend their personal debt which would have left them very exposed during a downturn in their business from 2008-2010
  3. Rental income from 2007 to 2012 was taxed at only 15% rather than their higher marginal rates.
  4. Secured a $90,000 tax-free gain on the investment property as they were in pension phase.
  5. Turned their superannuation accounts from mostly a Taxable component to accounts with more than $250,000 each of non-concessional components and Tax Free to their adult children as part of their Estate Planning.
  6. Oh and they missed the GFC effect on this portion of their investments!

Downside:

  1. Yes we had to pay Stamp duty but that was highlighted from the start as a possibility
  2. The house prices did not run away from them in Lake Macquarie but at least they were not worried.

I must also mention a comment the clients made in their latest review and that was that in the 12 months since they moved they have not seen an alternative property, that would have suited their needs so well, come on the market so the advanced planning worked in their favour. Oh and they now have 2 grandchildren that they look after 2 days per week while enjoying the Lake Macquarie lifestyle they wanted.

Why not checkout my article “ What can my SMSF invest in?” as a good place to start.

As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments in the section below.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Verante Financial Planning

SMSF Specialist Adviser Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  SMSFCoach on Facebook  

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.

%d bloggers like this: