There have been a number of changes to the superannuation work test and how it applies. This article discusses how the superannuation work test applies as of today; including the work test exemption, the work test declaration and when you are required to meet the work test.
What is the Superannuation Work Test?
The superannuation work test is required to be satisfied by people aged between 67 and 74 who wish to make personal concessional contributions to super. Specifically, the work test requires you to have worked for at least 40 hours over a 30-consecutive day period in the financial year that you wish to make a contribution to super and prior to the contribution being made.
When Do I Need to Satisfy the Work Test?
You are only required to satisfy the superannuation work test if you make a personal contribution to superannuation between the ages of 67 and 74 and wish to claim all or some of the contribution as a personal tax deduction (i.e. a personal concessional contribution).
If you are aged between 67 and 74 and wish to make a personal concessional (deductible) contribution to super, but do not satisfy the work test, you may still be able to make the contribution if you meet the work test exemption.
What is the Superannuation Work Test Exemption?
The work test exemption applies for a financial year if you had a superannuation balance below $300,000 on 30 June of the previous financial year and satisfied the superannuation work test at some point in the previous financial year.
Importantly, you can only utilise the work test exemption once in a lifetime.
Has the Work Test Been Abolished?
No, the superannuation work test has not been abolished. While the work test has been largely relaxed compared to prior requirements, it has not been abolished. The superannuation work test is still required to be met if you are aged between 67 and 74 and would like to make personal concessional contributions to super.
What is the Work Test Declaration?
If you are aged between 67 and 74 and make a personal contribution to superannuation that you wish to claim a personal tax deduction for, you will be required to make a work test declaration.
The work test declaration is made when you submit the form Notice of Intent to Claim a Tax Deduction with your super fund. This form can be found on your super fund’s website, or you may be permitted to use this generic ATO form. When completing this form, you will be asked how much of your personal contributions you would like to claim as a personal tax deduction and, if aged between 67 and 74, you will need to declare that you have satisfied the superannuation work test or work test exemption.
How Many Hours Do I Need to Work to Contribute to Super?
If you are below age 67, you are not required to meet the superannuation work test.
If you are aged between 67 and 74, you are required to engage in gainful employment for at least 40 hours over a 30-consecutive day period if you wish to claim a tax deduction for personal contributions. Alternatively, you can meet the work test exemption.
If you are aged between 67 and 74 and wish to make a personal contribution to super that you do not wish to claim a personal tax deduction for, then you are not required to work a certain number of hours in order to make the contribution.
What is the Gainful Employment Test?
The gainful employment test (work test) states that you are required to be gainfully employed for a minimum of
The gainful employment test is the same as the work test, just different terminology. The work test is the name of the test, but the wording used in the definition of the work test refers to being gainfully employed.
Specifically:
If you made the contribution during the period starting on the day you turn 67 and ending on the day that is 28 days after the end of the month in which you turn 75 you must have been gainfully employed for at least 40 hours in any period of 30 consecutive days during the income year in which the contribution was made; or…. Have a balance below $300,000 on 30 June of the previous financial year AND satisfied the work test in the previous financial year (work test exemption).
Begin gainfully employed is defined as: employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
Work Test Explanation on Ages 67 to 74
To be precise, referring to ages of between 67 and 74; this period begins from the day you attain age 67 and ends on the day that is 28 days after the end of the month in which you turn age 75.
Work Test and Work Test Exemption Examples
Here are some examples of how the superannuation work test and work test exemption apply in various situations.
Example 1: Under Age 67
Joanne is 64 years of age with a super balance of $500,000 and wishes to make a $50,000 personal contribution to super. Due to being under age 67, Joanne is not required to satisfy the superannuation work test.
Example 2: Aged Between 67 and 74 Working
Dennis is 68 years of age with a super balance of $500,000 and wishes to make a $50,000 personal contribution to superannuation. He wishes to claim $20,000 of this contribution as a personal tax deduction. As Dennis has been gainfully employed for at least 40 hours over a 30-consecutive day period (say, 1 July to 31 July – 20 hours per week), he is eligible to make the contribution in the current financial year.
Example 3: Aged Between 67 and 74 Not Working
Daniel is 68 years of age with a super balance of $500,000 and wishes to make a $50,000 personal contribution to superannuation. He wishes to claim $20,000 of this contribution as a personal tax deduction. As Daniel has not worked in the current financial year and has a super balance in excess of $500,000, he is not eligible to claim the $20,000 deduction.
Example 4: Aged Between 67 and 74 Not Working
Luke is 68 years of age with a super balance of $500,000 and wishes to make a $50,000 personal contribution to superannuation. He does not wish to claim any portion of this contribution as a personal tax deduction. Despite not working in the current financial year and not satisfying the work test exemption, Luke is free to make this contribution as he does not intend on claiming a tax deduction for any portion of it.
Example 5: Aged Between 67 and 74 Work Test Exemption
Jacqui is 68 years of age with a super balance of $200,000 and wishes to make a $50,000 personal contribution to superannuation. She wishes to claim $20,000 of this contribution as a personal tax deduction. Despite not working in the current financial year, Jacqui worked full-time up until December of the previous financial year. As Jacqui had a super balance below $300,000 on 30 June of the previous financial year and worked at least 40 hours over 30 consecutive days in the previous year, she satisfies the definition of the work test exemption and can utilise this once in her lifetime.
Example 6: Over Age 74
Anthony turned 75 on 15 of May and has a super balance of $500,000. He wishes to make a $50,000 contribution to super. Despite already being 75, he has until 27 June to make the contribution (up until the day before 28 days after the end of the month in which he turns 75) to make the contribution.
If he wishes to claim a personal tax deduction for any part of this contribution, he needs to have met the superannuation work test in the current financial year.
Optimising Your Contribution Strategy
Getting the most you can into superannuation, especially in the years leading into retirement can be very beneficial from a tax perspective. Not only are there immediate tax benefits, but the long-term tax benefits are often greater.
Suppose you are looking to contribute more into super as you transition to retirement, or have a lump sum that you wish to contribute. In that case, it’s important that your contribution strategy is consistent with your overall retirement plan. This can help you avoid making costly mistakes, having no access to your funds or resulting in excess contributions tax.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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