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Many Aussies are choosing to stay in the workforce longer, in some cases well into their late 60s and beyond. Apart from work satisfaction, many people are also keen to continue boosting their retirement savings by making additional super contributions.
For many, the biggest obstacle to topping up their super account at this point was the dreaded ‘work test’, which required you to prove you were gainfully employed before your super fund could accept your contributions.
All this changed from 1 July 2022, when the work test was abolished if you want to make most types of super contributions and you’re aged 67 or over. While this sounds great, you still need to take care, as the work test remains a requirement for one type of super contribution.
What is the superannuation work test (and the work test exemption)?
From the early days of Australia’s super system, contributions have always been tied to employment and earning income, so you needed to be working to make or receive contributions into your super account.
To ensure you were employed when you made a personal super contribution, you were required to prove you were gainfully employed before your super fund would accept it. This is referred to as the superannuation work test.
In 2004, the government changed the rules so the work test for personal contributions made by people under age 65 was abolished, but the rules still applied to contributions made by anyone aged between 65 and 75.
If you couldn’t meet the requirements of the work test, from 1 July 2019 a one-off work test exemption was introduced allowing some retirees to make contributions in the income year following their retirement. The work test exemption allows recent retirees to make super contributions if their total super balance (TSB) is less than $300,000 (see later in this article).
The Superannuation Legislation Amendment (2020 Measures No. 1) Regulations 2020 further changed the rules, lifting the threshold at which the work test applied to age 67. This age limit meant 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.
Following passage of the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Business Invest) Act 2022, the requirement to pass a work test was repealed for super contributors aged between 67 and 75 who wanted to make non-concessional or salary-sacrifice contributions into their super account.
This rule change applies to contributions made from 1 July 2022, but your contributions are still subject to the current contribution cap limits. You are also able to use the bring-forward rule.
Unfortunately, the new legislation did not abolish the work test entirely. If you wish to make a personal contribution for which you intend to claim a tax deduction and you are aged between 67 and 75, you are still required to meet the requirements of the work test.
What are the super work test rules?
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 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 the ATO 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
What is the work test exemption?
As many older Aussies found 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 was designed to allow recent retirees more time to get their affairs in order as they prepared for retirement.
To qualify for the work test exemption, you need to 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).
From 1 July 2022, you no longer need to use the work test exemption to make or receive non-concessional super contributions or salary-sacrifice contributions if you are aged between 67 and 75.
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 for which you intend to claim a tax deduction, you can contribute any amount up to your current concessional contributions cap for that particular financial year.
The annual general concessional contributions cap is $27,500 in 2022–23, although you may be able to contribute more if you have unused concessional contributions caps from previous years and roll them forward. This is called a carry-forward contribution and may allow you to contribute more.