SMSF members looking to use a withdrawal and recontribution strategy may be subject to tax avoidance provisions where their primary intention is to gain a tax benefit, a technical expert has stated.
Institute of Financial Professionals Australia (IFPA) senior technical services specialist Stuart Sheary said Part IVA of the Income Tax Assessment Act (1936) could be applied to superannuation withdrawal and recontribution strategies if the ATO can identify a number of key factors.
“For [Part IVA to apply] there needs to be a scheme, a tax benefit and a dominant purpose,” Sheary explained during a recent presentation at The Super Playbook 2025 event, co-hosted by IFPA and The Auditors Institute in Sydney last week.
“What that scheme is might be up for debate, but there always [has to be] a scheme, so there also needs to be a reasonable expectation of a tax benefit.
“The act defines the basis for identifying a tax benefit as any amount that would otherwise be included in your assessable income, and for the dominant purpose, while its subjective, the ATO and courts will look at objective facts to get into the mind of your client.”
He pointed out the ATO had made limited comments on this subject, but did so in 2004 and once again in 2010, and has conceded a withdrawal and recontribution strategy in the context of estate planning was unlikely to be considered tax avoidance.
“If you enter into a recontribution strategy for estate planning purposes [it has to be considered] when you are going to die and whether there will be any benefit. The member might decide to spend all their money at the end of the day. So the ATO said for that reason it was very unlikely to be Part IVA,” Sheary explained, noting this reasoning was also reiterated in a case before the Administrative Appeal Tribunal in 2017.
“In all these scenarios, death was not foreseen. So what would happen if I was told I was going to die next week and then enter into a recontribution strategy?” he asked.
“You could argue the tax benefit is much clearer. Is it definite? Not sure, but it is much clearer.
“My point is with a recontribution strategy – go for your life. By all means do it but do it sooner rather than later.
“What I’m saying is a recontribution strategy is always safer to do when death is not foreseen.”
