You may have heard a bit about the superannuation work test recently. In the May 2021 Federal Budget, the Government announced their intention to remove the rule as it has been difficult to police.
Once the measure has passed Royal Assent, the only criteria to contribute to superannuation will be age-based, together with a total superannuation balance cap. We anticipate that this will start from 1 July 2022. As we noted in our Federal Budget Review, you will need to be younger than 75 years and 28 days to make contributions such as salary sacrifice or non-concessional (after tax). It will not include personal concessional (tax deductible) contributions that you wish to claim a tax deduction for.
But until that time the current work test will remain the same, so today, we take a closer look at existing rules and explain more about the work test exemption.
What is the work test?
The work test outlines the requirements you must meet if you want to make voluntary personal contributions to your superannuation once you reach the age of 67. The ATO states:
“To meet the work test, you must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made. This is an annual test. This means once you meet this test you can make contributions for the entire financial year.
Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
If, due to the impacts of COVID-19, you are stood down from your employment but are receiving the JobKeeper payment then it is accepted that you are gainfully employed and meet the work test.
If you do unpaid work or only receive passive income, such as interest, dividends, trust distributions or rent, you do not meet the definition of gainfully employed.”
Work test exemption
The Government introduced the work test exemption on 1 July 2019, and it gives recent retirees a chance to boost their superannuation savings without having to satisfy the work test. Again, the ATO states: “From 1 July 2019, if you no longer meet the work test your super fund can still accept voluntary contributions for an extra 12 months from the end of the financial year in which you last met the work test, provided you meet certain criteria. This is called the work test exemption.
If you are in a defined benefit fund you cannot use the work test exemption. However, you can choose to open an accumulation account with another super fund to make voluntary contributions using the work test exemption.
To meet the work test exemption criteria, you must meet three conditions:
- You satisfied the work test in the financial year before the year in which you made the contribution.
- Your total super balance is less than $300,000 at the end of the previous financial year.
- You did not use the work test exemption in a previous financial year.”
Utilising the work test exemption could be a useful strategy to help maximise your super in the early stages of your retirement.
We recommend discussing your personal situation with a professional financial adviser, to make sure you are accessing all available financial opportunities.
Voluntary contribution caps
A voluntary personal contribution is recognised as any super contribution you wish to make that falls outside those mandated by law… such as the employer superannuation guarantee or under an industrial award.
For people over 67 years of age, contribution caps are still applicable, and they are the same as if you were under 67. However, for those under 67, you can access something called ‘bring forward’, allowing you to contribute up to three times the after tax limit listed below.
For financial year 2020/21:
- before tax (concessional) cap is $25,000
- after tax (non-concessional) cap is $100,000.
For financial year 2021/22:
- before tax (concessional) cap is $27,500
- after tax (non-concessional) cap is $110,000.
The work test exemption does not reference the type of contribution an individual can make. It allows you to process any type of voluntary contribution you would be eligible for based on your age, contribution cap and any other criteria.
This is why the work test exemption could offer you the possibility to optimise a range of contribution strategies including concessional, non-concessional, re-contribution and spouse equalisation.
Speak to your adviser
We understand that the superannuation work test rules can seem complicated and while they are likely to no longer be applicable in a year, there are still opportunities available to you now.
Here at First Financial, our team of talented financial advisers can partner with you… helping you to make smart decisions with your money so you can build wealth, reach your financial goals and retire your way. Contact us today. ead more Superannuation articles.