Work test: Making super contributions after you turn 67

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Background to super’s work test rules
What is the superannuation work test (and the work test exemption)?
What are the super work test rules?
What does gainfully employed mean?
How to prove you meet the work test
What is the work test exemption?
How much can you contribute using the work test and work test exemption?

Note: The information in this article is based on the work test rules that apply prior to 1 July 2022. Under the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Business Invest) Bill 2021, which passed both houses of parliament on 10 February 2022, the work test will be repealed for non-concessional and salary-sacrifice contributions made by people aged between 67 and 75. These changes will apply from 1 July 2022.

Reaching age 67 is now one of life’s big milestones, as that’s when most Aussies will become eligible for the Age Pension. But unfortunately, when it comes to the super system, it’s also the age when the super contribution rules start to tighten up.

Once you hit 67, putting extra money into your super account becomes more difficult as you need to prove you are gainfully employed, which means satisfying the superannuation work test.

Unfortunately, the super work test and the work test exemption can be a little tricky to understand, so here’s a simple guide to the key points.

Need to know: In the May 2021 Federal Budget, the government announced it planned to repeal the current work test for making super contributions for people aged between 67 and 74. Legislation has now passed both houses of parliament and will apply from 1 July 2022.

The proposed repeal of the work test will only apply when making non-concessional (after-tax) contributions or salary-sacrifice contributions.

If you wish to make a personal contribution for which you intend to claim a tax deduction, you will still be required to meet the requirements of the work test.

Background to super’s work test rules

From the early days of Australia’s super system, contributions have always been tied to employment, so you needed to be working to make or receive contributions into your super account.

In 2004, the government changed the rules so the work test for contributions made by people under age 65 ceased to operate, but still applied to those aged 65 and over.

The Superannuation Legislation Amendment (2020 Measures No. 1) Regulations 2020 finally changed this requirement by lifting the threshold at which the work test applied to age 67. It also began the process of aligning the work test requirement with the eligibility age for the Age Pension. (The Age Pension age is currently legislated to increase from age 66 to age 67 from 1 July 2023. For more information about the Age Pension age, read SuperGuide article What is the Age Pension age?)

The new age limit meant that, from 1 July 2020, if you were aged under 67 you could make personal or non-concessional contributions into your super account without needing to meet a work test requirement. Once you reached age 67 you were still required to meet the work test or use the one-off work test exemption.

The repeal of the work test from 1 July 2022 represents a significant break in the traditional link between super and employment.

What is the superannuation work test (and the work test exemption)?

The key thing to understand about making contributions into your super account if you’re aged 67 to 74 is that you need to be gainfully employed before your super fund will accept your contributions. This is referred to as the superannuation work test.

If you can’t meet the conditions of the work test, from 1 July 2019 there is a one-off work test exemption recent retirees can use to make contributions. This work test exemption allows recent retirees to make super contributions if their total superannuation balance (TSB) is less than $300,000 (see later in this article).

Need to know: Meeting the requirements of the work test does not apply if you plan to make a downsizer super contribution from the sale of your home, or to mandated employer contributions like Superannuation Guarantee (SG) contributions.

What are the super work test rules?

The key to the super work test is that once you turn 67, you must be able to prove you are gainfully employed before your super fund will accept your super contributions.

Gainfully employed is defined as working at least 40 hours in a period of 30 consecutive days during the financial year in which you wish to make super contributions. The 40 hours can be in any arrangement over the 30 consecutive days (for example, 9am to 5pm over four days, or a few hours each week).

The 30 consecutive days can be at any time during the financial year in which you want to make a voluntary super contribution, so they don’t have to be all in the same calendar month. The 40 hours amount is the minimum requirement you need to meet and there is no maximum limit on how many hours you can work.

Need to know: It’s not the ATO that administers the work test rules – it’s your super fund. So it’s worth talking to your fund to see if it will accept your declaration that you’ve met the work test requirements.

Although many super funds only require you to sign a form declaring you have met the work test, if the ATO decides to audit you in the future you will need to prove you have met the work test requirements.

If you are unsure, you can apply to the ATO for an interpretive decision on whether your circumstances will meet the gainfully employed definition for the work test.

What does gainfully employed mean?

According to the ATO, gainful employment means you are employed or self-employed and getting paid for it.

Gainful employment can be any business, trade, profession, vocation, calling, occupation or employment. You must, however, be remunerated in return for the personal services you are providing through a salary, business income, bonus or commission. The employment arrangement also needs to be fully documented and declared for income tax purposes.

Unpaid work does not meet the definition of gainfully employed. Volunteering or charity work is not considered gainful employment as you are not paid for your work.

Receiving payments for assisting family members by babysitting or gardening for example, generally does not meet the definition of gainful employment either. Being paid to look after your grandchildren while their parents are away on an extended holiday is also unlikely to be accepted as a true employment situation. There have been tax cases where the courts have ruled arrangements like these are really a domestic arrangement rather than employment, so your super fund is unlikely to accept such arrangements for work test purposes.

Generally, the gain or reward required for gainful employment under the work test cannot be passive investment income such as dividends from shares or rent received from an investment property.

How to prove you meet the work test

Most super funds require you to submit a written Work Test Declaration that you have been gainfully employed before accepting your contribution. You are responsible for being able to prove you have met the requirements.

A Work Test Declaration is required each financial year you make personal contributions into your super account after you reach age 67. Generally, you need to sign a declaration that you have met the work test requirements in the financial year the contributions were made or applied.

Some super funds require the work to be already completed and not be prospective employment undertaken later in the financial year. It’s sensible to check with your super fund for its particular requirements before making any contributions.

It’s also important to retain evidence of the work you performed, as you could be asked to provide appropriate evidence to support your declaration in the future. If the ATO audits you and the Tax Commissioner is not satisfied with the evidence you provide, your super contribution could be disallowed.

Case study 1

Jenny is aged 69 and works part time two days every week as an administrative assistant.

She has a salary-sacrifice arrangement with her employer and contributes her entire $24,000 salary into her super account, which means Jenny has no taxable income to declare in her income tax return.

Although Jenny has no taxable income, she can still satisfy the work test. She can download the necessary information from the ATO’s online service via her myGov account at the end of each financial year.

The salary-sacrificed amount will be reported to the ATO by her employer through the Single Touch Payroll (STP) system as a super contribution, which will provide evidence of the gain or reward for her employment needed to satisfy the work test.

Case study 2

Junyoung is aged 68 and is a self-employed kitchen designer. He wishes to make a personal non-concessional (after-tax) contribution into his SMSF account.

To satisfy the work test so he can make the contribution, he keeps notes of the work and activities he completes during the financial year, together with invoices and payment slips to substantiate both his employment income and the hours worked.

He also keeps records showing the work completed and the commercial rate paid for projects to demonstrate he is genuinely carrying on a business for gain or reward.

What is the work test exemption?

As many older Aussies find the work test rules difficult to meet, from 1 July 2019 the government introduced an exemption from the work test for voluntary super contributions made in the first income year after you retire. This exemption is designed to allow recent retirees more time to get their affairs in order as they prepare for retirement.

The work test exemption means if you are aged 67 and over (but under age 75), you can make voluntary super contributions for one more year after you stop working.

To qualify for the work test exemption, you must meet all the following conditions:

Satisfy the work test in the financial year preceding the year in which you make the contribution
Have a Total Superannuation Balance of less than $300,000 (this is your balance at 30 June of the previous financial year and you are not required to remain under the balance cap for the whole 12-month period)
Not previously used the work test exemption (if you use the exemption to make a contribution and later return to work, you can’t use it again when you retire).

How much can you contribute using the work test and work test exemption?

If you are using the work test or work test exemption to make contributions into your super account, you can contribute any amount up to the current concessional and non-concessional contributions caps for that particular financial year ($27,500 and $110,000 respectively in 2021-22).

You may also be able to use the bring-forward contribution rules to make a larger contribution during the 12-month exemption period. These rules allow you to make non-concessional contributions of up to three times the normal annual cap (currently $110,000). This means your bring-forward contribution amount could be $110,000 x 3 = $330,000.

For more information see SuperGuide article: A super guide to the bring-forward rule.

Need to know: To align the bring-forward rules with the new upper age limit of 67 before you are required to meet the work test, the government introduced a bill into parliament during 2020 to allow older super fund members aged 65 and 66 to access the existing bring-forward provisions. This meant if you were under age 67 (currently 65), you would be able to commence a bring-forward arrangement and contribute up to three years of your non-concessional contributions cap into your super account if you met the other eligibility criteria. This legislation did not pass through parliament and become law.

In the May 2021 Federal Budget, the government announced it intended to remove the work test for people aged 67 to 74 and permit them to commence a bring-forward arrangement. This legislation has not yet passed parliament and is not law, but the government expects it to commence from 1 July 2022.