Getting money into super
The work test must be met in order for the trustee of a super fund to accept member contributions or voluntary employer contributions if the member is age 65 or over at the time of the contribution, but is under the maximum age for that type of contribution.
The work test does not apply to members who, at the time of the contribution, are:
- under the age of 65, or
- age 65 - 74 and qualify for the work test exemption, or
- age 65 or over and are making downsizer contributions
|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.|
- The work test, if applicable, must be met prior to the contribution being made.
- The trustee cannot take prospective employment into account. The member must have worked at least 40 hours within 30 consecutive days in the financial year before the trustee can accept the contribution.
- Mandated employer contributions may be made at any age without the member meeting the work test.
- The work test can be satisfied anywhere in the world.
|2019 Federal Budget proposal
No work test for voluntary contributions extended to age 66: Effective 1 July 2020
The Government proposed to amend the superannuation contribution rules to allow people age 65 and 66 to make voluntary member and voluntary employer contributions to superannuation without meeting the work test.
At the time of writing, this proposal is not yet law.
|Gainfully employed is employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.|
The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion.
Voluntary or charity work arrangements are unlikely to satisfy the definition of gainfully employed, even where they involve the provision of meals or reimbursement of expenses.
Gainful employment and periods of leave
Whether a person is gainfully employed can be unclear where a person who is employed in a paid employment position is not physically working. The absence of any personal exertion may be due to the person being:
- on paid annual leave, or
- on unpaid leave, or
- off work while being paid workers compensation or income protection.
Leave taken (paid or unpaid)
Periods of paid and unpaid leave taken in the ordinary course of employment (where the employment involves working at least 40 hours in a 30 consecutive day period) are likely to count towards satisfying the work test. This view is based on:
- a previous version of APRA SPG270 (para.59), which stated: 'APRA regards periods of authorised leave, whether paid or unpaid, and actually taken by the member as leave, as periods of gainful employment in applying the gainful employment test for contributions in respect of members aged 65 or more'.While the updated version of this SPG removed this guidance, there was no indication from APRA that their view had changed regarding this issue.
- non-binding correspondence from the ATO, which discussed a person who had been on unpaid leave, stated that although 'unpaid work does not meet the definition of gainfully employed' that in the particular circumstances:'...while this member is not currently being remunerated for their employment it is accepted that if their usual arrangement is to be remunerated and they would under ordinary circumstances work at least part time as defined above they can be accepted as remaining in gainful employment'.
Unfortunately, neither APRA nor the ATO has any currently published information that confirms this view. Therefore, advisers wanting certainty may wish to consider seeking specific legal advice or guidance from the ATO.
Unused leave payments
It is important to note that lump sum payments for unused leave received after an individual's termination of employment do not count as a period of gainful employment. The previous version of APRA SPG270 at para. 59 stated:
'...where the member has not taken actual leave but has taken their entitlement to it as a lump sum or equivalent, this cannot be counted as a gainful employment period'. While the updated version of this SPG removed this guidance, there was no indication from APRA that their view had changed regarding this issue.
Workers compensation and income protection
A person continuing an employment arrangement and receiving:
- workers compensation payments from their employer or insurer, or
- income protection payments from their employer, insurer or super fund
may still be considered gainfully employed for the work test even though they are not currently undertaking physical work, if the payment is connected to their employment arrangement.
Personal legal advice should be sought where circumstance of work arrangements and/or payments are unclear.
Work test exemption
The work test exemption is intended to give members with low superannuation balances more time to make contributions to superannuation after they have retired.
From 1 July 2019, members age 65 to 74 who cannot make voluntary contributions under the existing rules (due to not meeting the work test), can make voluntary contributions using the work test exemption if:
- they met the work test (40 hours of gainful employment in a 30 consecutive day period) in the previous financial year, and
- their total superannuation balance at the end of the previous year is less than $300,000, and
- they have not made use of the work test exemption in a previous financial year.
Important points to note:
- Once in a lifetime exemption - the work test exemption can only be used in one financial year. This prevents members from using the exemption, then meeting the work test, and using the exemption again in a later financial year.
- Only available to members who cease work for the last time at age 64 or later. As the exemption is only available for members age 65 to 74 who meet the work test in the previous financial year, the exemption is only available for those who cease work for the last time on or after age 64. Members who ceased work for the last time at an earlier age will not be able to utilise the exemption.
- Only available to members with relatively low superannuation balances. As total super balance must be below $300,000 at the end of the previous financial year, it limits the number of members who will be able to utilise this measure. However, it may be an opportunity to equalise superannuation balances for members of a couple where one partner has a lower superannuation balance
- Other contribution eligibility rules still apply. The work test exemption does not permit contributions to be made when the member would not otherwise be eligible due to their age. Examples are:
- spouse contributions cannot be made in respect of a spouse who is age 70 or over
- other voluntary contributions cannot be made once a member has reached age 75 (including 28 days after the end of the month the member turns 75).
- Any type of voluntary contribution may be made. Members using the work test exemption are able to make any type of voluntary contribution, including concessional and non-concessional. This means they may have access to:
- a concessional cap of $25,000 (2019-20)-carry forward of unused concessional cap amounts since the 2018-19 financial year (carry forward amounts are limited to the five previous financial years)
- a lifetime CGT cap of $1.515 million (2019-20)
- contributions arising from structured settlements or orders for personal injuries (no cap)
- bring forward rule for non-concessional contributions. See below for more information.
|Example: Using the work test exemption
Carla is age 69 on 1 September 2019 and wishes to make a non-concessional contribution of $100,000 to her superannuation fund. As she hasn't been gainfully employed during the 2019-20 financial year, she does not meet the work test. However, Carla retired from full time work in March 2019 and met the work test in the 2018-19 financial year. Her total superannuation balance at 30 June 2019 was $260,000.
As a result, Carla is able to rely on the work test exemption to make up to $100,000 in non-concessional contributions during the 2019-20 financial year.
Using the work test exemption to trigger the bring forward rule
Members can trigger the bring forward rule after their 65th birthday, in the year they reach age 65, where they do not meet the work test in that year, provided they satisfy the work test exemption criteria above.
|Example: Triggering bring forward rule using work test exemption
Colin retired from full-time work in March 2019 and used up his general non-concessional cap of $100,000 in 2018-19. His total superannuation balance at 30 June 2019 is $250,000. He reaches age 65 on 2 August 2019.Colin has an investment property that he plans to sell for $500,000 and wants to maximise his superannuation.
Colin will be eligible to make voluntary contributions throughout the 2019-20 financialyear. He can therefore wait until early 2019-20 to sell his property (potentially minimising any tax on assessable capital gains since he has no employment incomein 2019-20 and his tax rate will potentially be lower). Colin can then use the work test exemption from 2 August 2019 (his 65th birthday) and for the remainder of 2019-20 to make a non-concessional contribution of $300,000 under the bring forward rule.
Last modified: Tuesday, July 23, 2019