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Super Super Again

If you believe that superannuation should be entirely voluntary and the government should not be telling us what we can and can’t do with our own money, it’s only a short step to claim that income tax, in fact all tax, falls into the same category.

Within the superannuation system there is one huge anomaly, the principle of “double taxation”, which eventually led to one example of abandonment by the government, namely imputation credits. The other remains as a glaring example of double taxation.

Your money inside your superannuation account possibly contains both a taxed portion which is taxed at 15% and an untaxed portion on which you pay nil tax. The undeducted contribution (nil tax) retains its identity alongside the taxed amount. Why? Because the taxed component of your super fund will be taxed again (same rate, same 15%) if it’s distributed to anyone except yourself, your spouse or your dependants.

There are two ways to avoid this double taxation. If you are still able to contribute to super – because of your age, or because you meet the work test – the “recontribution” strategy will allow withdrawals, which must be a strictly apportioned combination of both taxed and untaxed amounts. The entire amount withdrawn can then be recontributed as an untaxed amount.

And the other way to avoid double taxation?

For a husband and wife team mutual wills can ensure that super goes to the surviving spouse who then withdraws in full from the super fund.

Tax evasion? No!

Tax avoidance? Absolutely!