In the 2018 May Budget, the Government announced the proposal to allow individuals with smaller super balances (under $300,000) who are recent retirees and who have attained age 65, to make last chance voluntary contributions by providing a one year exemption from the work test. The proposed start date is from 1 July 2019 for the 2019/20 and subsequent financial years.
DISCLAIMER –this is only DRAFT legislation (released 2nd October 2018) yet to go through parliament for approval, so it is definitely early days. However this is a space worth watching especially if you are approaching retirement at age 65 or above in the coming years and looking to dispose of personal investments to top up super which is under $300,000.
Refresher - When does the Current Work Test Apply (aged 65 to 74)
The work test applies to individuals who have attained age 65 but who are less than age 75 wanting to make voluntary contributions to super (including personal contributions, salary sacrifice and even voluntary employer contributions in excess of the award or mandatory Super Guarantee). The work test does not apply to mandatory employer contributions and it also does not apply to “downsizer contributions”.
Refresher - What is the “Work Test”?
If you are currently over the age of 65 you must first satisfy the work test in any given year before qualifying to contribute to super in that same financial year.
A member meets the work test if the member has been ‘gainfully employed’ for at least 40 hours in a period of not more than 30 consecutive days in the financial year of the contribution. This test must be met prior to contributions being made.
Gainfully employed: is employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. The gain or reward must be tangible (e.g. salary, wages, business income, commissions, etc) and charity work is not generally considered gainful employment.
So what is the Proposed Work Test Exemption?
The exemption is that in respect of the first financial year in which the individual does not satisfy the work test, the individual can make member contributions up to their non-concessional contributions cap (currently $100,000) and also member contributions up to their concessional contributions cap (currently $25,000).
There are a number of preconditions for making work test exempt contributions which must all be satisfied:
- The individual must have satisfied the work test in respect of the financial year immediately preceding the financial year in which the contribution is made.
- The total superannuation balance of the individual immediately before the start of the financial year in which the contributions are made must be less than $300,000. In determining the total superannuation balance, the withdrawal value of any account-based or account-like income streams must be used.
- No work test exempt contributions must have been made in respect of the individual in respect of a previous financial year (whether to a superannuation fund or to a retirement savings account).
Example of work test exempt contributions:
Roger celebrates age 65 with a bang on 1 November 2020 and ceases full time work the same day .
- Contributions before his 65th birthday 1/11/20 are not subject to work test.
- Contributions between his 65th birthday (1/11/20) and 30/6/21 in the same year qualify under the regular work test scenario as he has met the work test many times over in the first 4 months of the 20/21 year before retiring.
- Under the Proposed legislation, Roger would be able to make “Work Test Exempt” contributions within the legislated CAPS for the following year as well (2021/22) without meeting the work test provided his Total Super balance as at 30 June 2021 is under $300,000.