Proposed Changes to Work Test and Non-Concessional Contributions for those between 65 and 74

As it currently sits, any individual between the ages of 65-74 with a superannuation balance under $300,000 must satisfy the work test for each year they wish to make a non-concessional (after-tax) contribution.  The work test states that an individual must have been gainfully employed for at least 40 hours for a period of not more than 30 consecutive days in the financial year they wish to contribute. If an individual fails to satisfy the work test and makes a non-concessional contribution to their super fund, they can face serious tax implications.

The current requirement for members to meet the work test can create potential delays for members if they don’t declare the work test with their fund in a timely manner.  As per the Superannuation legislation, a super fund can only hold onto a contribution for a maximum of 28 days whilst awaiting receipt of the notice.  If they do not receive the work test declaration, they must legally refund that contribution as they cannot apply the amount to the account as a Non-Concessional Contribution.

To illustrate the delays this can cause, here is an example.  Sally (Age 67) makes a $100,000 non-concessional contribution to her super fund on 20 June 2018, just before the end of the financial year.  The following day Sally departs for an overseas trip where she will be travelling throughout Africa.  A few days later Sally’s adviser is notified that for the contribution to be applied Sally must declare that she has worked 40 hours in a period of no more than 30 consecutive days. Her super fund also requires Sally to complete a signed form as they will not take verbal confirmation.  Sally is currently out of contact and does not readily have access to Wi-Fi nor a printer.  The super fund tells her adviser that if the work test is not declared within 28 days, the funds will be refunded to Sally, which means her contribution would not count towards the financial year in which she made the contribution.

Recognising the setbacks the work test rule can create, the 2018 federal budget proposed some relaxation around the first year an individual does not meet the work test.  The proposal is set to commence 1 July 2019 and would mean that an individual would still be permitted to make voluntary contributions in the first year they fail to meet the work test.  Total superannuation balances will still be assessed for eligibility in the last financial year the individual satisfied the work test, and there is also no requirement for a member’s balance to remain under $300,000 once the member is eligible.  What this change means is that Sally can enjoy her holiday without worrying about her non-concessional contribution being refunded!

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Written by Hugo Sampson of LifeTime Financial Group. A leading privately-owned Melbourne Financial Planning practice.

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