New Work Test Rules for Older Australians

July 16, 2019

Previously, those 65 and above needed to have been gainfully employed for at least 40 hours over a period of 30 consecutive days (the work test) during the financial year before they could make voluntary superannuation contributions.

From 1 July 2019, some people are now able to access an exemption to the work test to make superannuation contributions. The work test exemption allows them to make voluntary contributions for a period of 12 months from the end of the financial year in which they last met the work test. The usual contribution caps¹ still apply, including the bring forward provisions for non-concessional contributions² and the higher concessional contributions cap from carried forward unused concessional contributions cap amounts³ from prior years.

Those who may have missed out on transferring their wealth in the concessionally taxed superannuation environment are now potentially given another 12 months to contribute to super.

To access the exemption, you:

• Need to be over age 65 but under 75;
• Need to have a total superannuation balance below $300,000 on 30 June of the prior financial year in which you choose to access the exemption; and
• Have not made contributions under the work test exemption provisions in a prior year.

Under the new rules, someone who is 67 and retired in the previous financial year, can make ‘top-up’ contributions up to the respective concessional and non-concessional contribution caps by accessing the new work test exemption rules. However, being over age 65 that person cannot access the bring forward provisions and is limited to a non-concessional cap of $100,000. A concessional cap of $25,000 plus any unused concessional cap amount from previous years are also accessible in this case.

In contrast, someone who retired in the year before, but only turns 65 in this financial year, can contribute up to $300,000 as non-concessional contributions under the bring forward provisions. The usual $25,000 concessional cap would also apply, as well as any unused concessional cap amount.

The new rule is helpful, for example, to someone who is retiring and has an investment property that they would like to sell. Selling the property when employment income is earned could lead to a sizeable tax bill. This is because any assessable capital gains from the sale of the property would need to be added to other taxable income. Delaying the sale to the following financial year, when the income may be nil, and offsetting the capital gains with deductible superannuation contributions, could potentially save a sizeable amount of tax. Paying less tax means there would be more money left for you to enjoy in retirement.

¹the non-concessional cap being $100,000 and the concessional cap being $25,000 per financial year, subject to the Total Super Balance

²up to $300,000 in any given financial year, subject to the Total Super Balance

³those with a total superannuation balance of less than $500,000 just before the start of a financial year, can increase their concessional contributions cap in the year by applying unused concessional contributions caps amounts from one or more of the previous five financial years