- 1. Work test required
- 2. No voluntary super contributions beyond age 74
- 3. Tax-deductible contributions need taxable income
- 4. If marginal tax rate is less than 15%, is it worth making concessional contributions?
- 5. You must be gainfully employed
- 6. Work test involves any paid endeavour
- 7. Volunteer work not counted
- 8. Satisfy work test once only in financial year
- 9. Ensure you fully document gainful employment
- 10. Bring-forward rule is not available for over-65s
Australians can make voluntary superannuation contributions up to the age of 74 (that is, before you turn 75), and these super contributions can be concessional (before-tax) or non-concessional (after-tax) contributions. If you’re aged 65 or over however, then you must satisfy a work test, if you intend to make super contributions. Anyone under the age of 65 can make super contributions without having to satisfy a work test.
Note: Regardless of your age, your employer must make Superannuation Guarantee contributions for as long as you continue working and remain eligible for SG contributions (for example, earn a minimum of $450 a month). The payment of SG used to be only required for those aged under 70, but the requirement was broadened to any age since 1 July 2013. For more information on this change to the SG rules, see SuperGuide article Employer super (SG) contributions paid for over-70s.
Downsizing and super: In the May 2017 Federal Budget, the government announced that from 1 July 2018 (and now law), older Australians (65 and over) will be allowed to contribute part or all of the proceeds of their home (up to a limit of $300,000 per individual), without the need to satisfy a work test, and even applies to an individual who is aged 75 years or over. For more information on the downsizing policy, see SuperGuide articles Contributing super by downsizing your home: 10-point guide and Over 65? Sell your home and contribute more to super
Here are ten tips to help you understand the super contribution rules for over-65s.
1. Work test required
Anyone aged 65 or over must satisfy a work test, before contributing. If you’re aged 65 or over (but under the age of 75), you can make super contributions if you’re at least gainfully employed on a part-time basis. In short, you must work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make a super contribution. See Tip 6.
Downsizing and super: If you’re eligible for the downsizing and super policy (refer earlier), then no work test will be required for an eligible Australian to make a super contribution from the proceeds of a person’s home sale, assuming all other requirements for the policy are met.
2. No voluntary super contributions beyond age 74
People aged 75 or over cannot contribute to a super fund (although since July 2013, an employer must contribute Superannuation Guarantee contributions beyond the age of 70 and over (and obviously beyond the age of 75, if the employee is eligible). For more information, see SuperGuide article Super contributions beyond the age of 75.
Downsizing and super: If you’re eligible for the downsizing and super policy (refer earlier), and an individual chooses to take advantage of the policy, then non-concessional (after-tax) contributions (up to a limit of $300,000 per individual) can also be made by an individual who is aged 75 years or over, subject to meeting other requirements.
3. Tax-deductible contributions need taxable income
If you intend to claim a tax deduction for concessional super contributions, you need assessable income, such as employment income, or business income, or net rental income, to justify the tax deduction. For more information see SuperGuide article Tax-deductible super contributions: Claim no more than your income.
4. If marginal tax rate is less than 15%, is it worth making concessional contributions?
Tax-deductible super contributions and other concessional contributions are subject to 15% tax within a super fund, which means that claiming a tax deduction for super contributions may not be tax-effective if you pay less than 15 cents in the dollar tax on your personal income. Note that an individual earning more than the tax-free threshold (that is $18,200, or $20,542 with Low Income Tax Offset) but less than $37,000, has a marginal income tax rate of 19%.
Note 1: If you earn less than $37,000 a year, you may be eligible for a refund of the 15% contributions tax on concessional contributions, known as the Low Income Super Contribution (see SuperGuide article Superannuation tax refund: 10 things to know about LISTO). Since 1 July 2017, the LISC has been renamed the Low Income Superannuation Tax Offset.
Note 2: The current contributions tax is a flat rate of 15%, and this 15% contributions tax applies to all concessional contributions made on behalf of individuals earnings less than $300,000. Since 1 July 2012 and until 30 June 2017, anyone earning more than $300,000 must pay an additional 15% tax on concessional contributions paid into a super fund, doubling the super tax bill for high-income earners. This extra 15% tax is known as the Division 293 tax. Since 1 July 2017, the extra 15% tax applies to anyone earning $250,000 or more. For more information on the extra tax on contributions see SuperGuide article Double contributions tax for more high-income earners.
5. You must be gainfully employed
The key term in the work test for making super contributions when you’re aged 65 years or over (see Tip 2) is that you must be “gainfully employed”. Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. According to the Australian Prudential Regulation Authority’s circular on contributions, “gain or reward” involves remuneration such as “salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion”. For more information on the work test, see SuperGuide article Over-65s work test: How does it operate again?
6. Work test involves any paid endeavour
The work test can be satisfied when “employment” involves any endeavour where you receive remuneration for your efforts, including farming, babysitting, cleaning, lawnmowing, gardening, consulting and paid employment. You will need to confirm with the tax office whether your arrangements satisfy the work test rules. For more information on the work test, see SuperGuide article Over-65s work test: How does it operate again?
7. Volunteer work not counted
Unfortunately, volunteer work does not count towards the 40-hour work test to enable over-65s to make super contributions.
8. Satisfy work test once only in financial year
An individual only has to work 40 hours of gainful employment in one 30-day period to satisfy the work test for contributing in a financial year.
9. Ensure you fully document gainful employment
Any income that you receive for this work must be fully documented and declared for tax purposes.
10. Bring-forward rule is not available for over-65s
When aged 65 or over, you cannot take advantage of the bring-forward rules when making non-concessional contributions, that is, after-tax contributions. The bring-forward rules permit an individual to make contributions representing the current year’s cap, and the next two years’ cap, in a single year. Note there are transitional rules in place for the 2017/2018 year, for bring-forwards already commenced before July 2017. For more information on the bring-forward rules see SuperGuide article Bring-forward rule: A definitive super guide.