Superannuation - The Work Test
You may have turned 65 and are wondering how to make further contributions to your super fund. What if I start a pension, am I still allowed to make further contributions? What type of contributions and limits apply to me?
These are all valid considerations, which are even more pertinent after turning 65. Failing to consider these questions, can be costly and extremely frustrating to rectify.
We will explore below the criteria for the work test, the new work test exemption from 1 July 2019, proposed changes to the work test, and case studies to tie these ideas together.
Criteria
The work test requirement applies once an individual attains the age of 65 (or 67 from 1 July 2020) and intends to make contributions to their fund, including:
Personal deductible contributions,
Salary-sacrificed contributions,
Non-concessional contributions, and
Spouse contributions – the receiving spouse would need to satisfy the work test.
The work test does not apply to mandated employer contributions and the downsizer contribution.
To meet the work test for contributions made between the ages 65 - 74, you will need to be gainfully employed for at least 40 hours in any consecutive 30-day period during the year of the contribution. The work test does not have to be met before the contribution, only during the year of the contribution.
‘Gainful employment’ is defined broadly as being employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. It does not include any unpaid or passive income.
Work Test Exemption
From 1 July 2019, recent retirees may be eligible to access a once-off work test exemption, if they meet the following conditions:
The work test has been met in the year preceding the contribution,
The member’s Total Super Balance at 30 June of the prior year is less than $300,000, and
The member has not previously utilised the work test exemption.
Upon meeting the conditions, the member may be able to contribute a maximum of $100,000 non-concessionally, plus any voluntary concessional contributions up to the relevant cap ($25,000 per annum or utilising any unused cap for concessional contributions made since 1 July 2018).
Note that the non-concessional contribution is further subject to the $1.6 million Total Superannuation Balance rule.
Case Study - Gainful Employment
Barry, aged 67, volunteers at his local op shop four days a week and intends to claim a personal deductible contribution in June 2020. He has no other employment income.
Volunteer and unpaid work does not satisfy the work test. Barry is ineligible to make voluntary contributions.
Case Study - Inheritance
Hillary received an inheritance in December 2019 and intends to contribute the proceeds of $350,000 to her fund. She turned 65 in March 2020 and met the work test in the 2020 financial year.
Provided Hillary hasn’t applied the bring-forward rule for non-concessional contributions in the last three years, she could contribute up to $300,000 of the proceeds before March 2020 (as a non-concessional contribution), plus an additional $25,000 by 30 June 2020 (as a concessional contribution). Utilising the work test exemption, she may be able contribute another $25,000 by 30 June 2021 (as a concessional contribution) subject to her taxable income for the year.
Proposed Changes
Proposed legislation to increase the bring-forward rule upper age limit from 65 to 67, is still to be passed as law, as of August 2020.
Talk to us
JPR’s team of Superannuation specialists can help, so give us a call on 03 9853 7300 to discuss any of your queries.