TPD Tax Strategy: The Rollover Uplift Most Advisers Miss
When a permanent injury changes everything, the last thing you need is an unnecessary tax hit on your TPD payout. Here’s the ATO-approved strategy that saved one Melbourne client $15,000.
The $37,000 Mistake Most People Make
Picture this: You’re 45, forced out of work by a permanent injury, and your super fund pays out a $450,000 TPD claim. Relief, right?
Not quite.
If you’re under 60 and withdraw that money directly, you could face a brutal tax bill. In Sarah’s case (a Melbourne teacher we worked with) it would have been $37,400 in tax on the taxable component of her payout.
But there’s a little-known ATO strategy that changed everything. By rolling over her TPD benefit to an SMSF before withdrawal, Sarah increased her tax-free component from $280,000 to effectively reduce her tax bill by over $15,000.
This isn’t a loophole. It’s legitimate tax planning using the ATO’s own rules on superannuation withdrawals.
Let me explain how it works and why your current super fund probably won’t tell you about it.
How the TPD Tax Uplift Strategy Works
When you receive a TPD payout before age 60, it typically consists of two components:
Tax-free component: Based on non-concessional contributions and certain other amounts
Taxable component: The bulk of most super balances, which faces tax of up to 22% (plus Medicare levy) when withdrawn
Here’s where it gets interesting.
When you roll over your TPD benefit to a new super fund (or SMSF) instead of withdrawing it immediately, the ATO allows a “tax uplift” calculation. This recalculates your tax-free component based on your years of service from your start date to age 65.
The formula increases your tax-free portion significantly particularly if you’ve worked for 10+ years and still have years until you turn 65.
The Real-World Numbers
Let’s break down Sarah’s situation:
Direct withdrawal (no rollover):
- Total TPD payout: $450,000
- Tax-free component: $110,000
- Taxable component: $340,000
- Tax at 22%: $74,800
- Medicare levy (2%): $6,800
- Total tax: $81,600
- Net received: $368,400
SMSF rollover with tax uplift:
- Total TPD payout: $450,000
- Recalculated tax-free (with uplift): $280,000
- Taxable component: $170,000
- Tax at 22%: $37,400
- Tax saved: $44,200
But it gets better.
If you commence an account-based pension from your SMSF instead of withdrawing it all as a lump sum, you receive a 15% tax offset on the taxable component. This reduces the effective tax rate to around 7%.
Sarah used $200,000 to start an income stream (taxed at effectively 7%) and took $250,000 as a lump sum for home renovations and debt reduction. Her total tax? Around $22,000 instead of $81,600.
That’s real money freed up for family needs during an already difficult time. try our calculator here
Three Critical Factors Your Adviser Should Check
1. Your Service Date
This is where many funds get it wrong.
Your “service date” determines how the tax uplift is calculated. It’s not necessarily your employment start date—it’s your super fund start date.
If you’ve been with multiple funds, or your fund has merged with others, the service date should be the earliest date from any of those funds. We’ve seen cases where funds use the wrong date, costing clients tens of thousands in unnecessary tax.
Check your member statement. If it looks wrong, request a service date review from your fund before processing any TPD claim.
2. Non-Concessional Contributions
If you’ve made after-tax contributions to super over the years, these already count as tax-free. Before rolling over your TPD benefit, consider whether additional NCCs make sense (if you have contribution cap space).
This isn’t relevant for everyone, but for business owners who’ve been pulling money out of their company as NCCs, it can meaningfully improve the tax outcome.
3. Fund Rules on TPD Payments
Not all funds allow you to keep your benefit in super after a TPD claim is approved. Some require full withdrawal within a certain timeframe.
This is where SMSFs shine. You control the rules. You can receive the TPD benefit, roll it into your SMSF, and then choose the most tax-effective withdrawal strategy based on your actual needs—not the fund’s arbitrary deadlines.
Why This Matters for Melbourne Business Owners
If you’re an SME owner in your 40s or 50s, your business insurance typically includes TPD cover. But here’s what most don’t realise: the payout often goes directly to your super fund, triggering immediate tax consequences if not handled properly.
We’ve worked with multiple Ivanhoe and Collingwood business owners who’ve been forced to exit their businesses due to health issues. The TPD payout becomes a critical piece of family financial security. Only if you don’t lose 30-40% to preventable tax.
The rollover uplift strategy isn’t complex. It just requires:
- Understanding your service date
- Structuring the rollover correctly
- Choosing the right mix of lump sum vs income stream
- Working with advisers who actually know these rules exist
At AMGENT, we’ve processed these rollovers for clients across Melbourne. The tax savings typically range from $15,000 to $50,000+ depending on the claim size and individual circumstances.
Smart ASX Plays for SMSF Portfolios in 2025
Now, let’s talk about what to do with that tax-optimised TPD benefit once it’s in your SMSF.
The broader ASX market has delivered around 7% year-to-date, but small caps are crushing it with 19% returns. For SMSF trustees willing to look beyond the big four banks and household names, there are genuine opportunities in under-followed quality companies.
Here are three we’re watching:
1. Integrated Diagnostics (IDX) – Healthcare Infrastructure
Bell Potter recently highlighted IDX as one of their key small-cap picks. The company operates pathology and diagnostic imaging services—essential healthcare infrastructure with defensive revenue streams.
Why it matters: Australia’s ageing population drives structural demand growth. Companies with established networks and government funding support offer lower volatility than speculative plays.
2. KEYPATH Education (KYP) – HR Tech Platform
KYP provides technology platforms for online education and professional training. Trading at around 20x PE, it’s not cheap—but the business model is scalable with high margins once established.
The education technology sector is consolidating. Well-positioned platforms with sticky enterprise contracts can compound growth over 5-10 year timeframes—exactly the horizon SMSF investors should focus on.
3. Capstone Copper (CSC) – Pure-Play Copper Exposure
Macquarie recently put a $16.50 price target on Capstone with 23% upside. The company beat Q3 production targets and sits perfectly positioned for the electrification mega-trend.
Copper supply remains tight globally while demand from EVs, renewable energy infrastructure, and data centres continues accelerating. Pure-play copper miners without the complexity of diversified mining operations offer cleaner exposure to this theme.
Why Small Caps in an SMSF?
Allocating 10-15% of your SMSF to quality small caps can add 2-3% to overall portfolio returns without dramatically increasing risk—if you focus on profitable, cash-generative businesses rather than speculative hopes.
The big banks aren’t going anywhere, but they’re also not delivering the growth rates many SMSF trustees need to hit their retirement income targets. Diversification into well-researched small caps bridges that gap.
2025 Share Tips: What the Technicals Say
Looking ahead to 2025, a few technical patterns are worth noting:
NextDC (NXT): Showing support around $13.40. Data centre infrastructure remains a structural growth theme tied to AI deployment and cloud adoption.
APA Group (APA): Holding above $9. Gas infrastructure assets provide reliable income with inflation-linked contracts—perfect for SMSF income strategies.
Capstone Copper (CSC): December typically sees copper rally on restocking ahead of Chinese New Year. Volume patterns are confirming accumulation.
These aren’t “hot tips”—they’re observations from technical analysis that help with entry timing on quality businesses you’ve already researched fundamentally.
What This Means for High-Net-Worth Professionals
Doctors, IT executives, and C-suite professionals often have the largest TPD cover through their super—sometimes $1-2 million or more.
The tax uplift strategy becomes even more valuable at these claim sizes. A 10-15% improvement in tax outcome on a $1.5 million TPD payout could save $150,000+.
But here’s what we see repeatedly: busy professionals assume their retail super fund will handle it optimally. They don’t.
Retail funds follow standardised processes. They’re not structured to provide sophisticated tax planning on TPD payouts. That’s not a criticism—it’s just a reality of their business model.
If you’re a high earner with substantial super and TPD cover, having an SMSF structure in place before you need it means you’re ready if the unexpected happens. The rollover uplift strategy isn’t something you can implement after you’ve already withdrawn the benefit.
Final Thoughts: Strategy Over Speculation
Whether it’s optimising TPD tax outcomes or building a quality small-cap allocation in your SMSF, the theme is the same: strategy beats speculation.
The rollover uplift isn’t sexy. It doesn’t promise overnight riches. It’s just smart tax planning using rules most people don’t know exist.
Similarly, investing in profitable small-cap companies with genuine business models isn’t as exciting as chasing the next crypto pump or AI stock everyone’s talking about. But over 10-20 years—the timeframe superannuation actually operates on—it compounds wealth reliably.
At AMGENT, we’ve spent two decades helping business owners, expats, and professionals navigate these exact scenarios. From navigating London markets during the dotcom bust to guiding Australian super funds through the GFC, the lessons are consistent:
Clarity: Understand the rules and use them properly
Loyalty: Build long-term strategies, not quick fixes
Legacy: Structure wealth to protect the next generation
If you’ve received a TPD claim, are considering SMSF for more control, or want to discuss quality small-cap allocation strategies, let’s talk.
Take Action
Received a TPD payout or expecting one?
Book a complimentary 15-minute TPD tax strategy review. We’ll run the numbers on your specific situation and show you the potential tax savings from a rollover uplift strategy.
Building an SMSF portfolio for 2025?
Let’s discuss how quality small caps fit into your overall wealth strategy—balancing growth, income, and risk appropriate to your retirement timeline.
Important Disclosure: This article provides general information only and does not constitute personal financial advice. TPD claims and tax outcomes depend on individual circumstances. Before making decisions about superannuation withdrawals, rollovers, or investment strategies, consult with a qualified financial adviser. AMGENT Wealth Management Pty Ltd is committed to providing independent, client-centric advice aligned with your long-term goals.
Benjamin Waite is the founder of AMGENT Wealth Management, bringing over 20 years of experience across international investment markets, superannuation strategy, and comprehensive financial planning. His background spans the London Metals Exchange, major Australian superannuation funds (Colonial First State, Hostplus, CBUS), and leadership roles at ING Australia, NAB, Mercer, and RSM. Ben specialises in SMSF strategy, business succession planning, and cross-border wealth solutions for high-net-worth individuals and families in Melbourne