Announced as part of the 2018 Federal Budget, and effective from 1 July 2019, the work-test exemption was introduced to allow recent retirees the ability to contribute to their superannuation without having to meet the work test.

THE WORK-TEST

The work-test applies to those between ages 65 and 74. Members between these ages must have been gainfully employed for 40 hours within 30 consecutive days during the financial year before making a member or voluntary contribution. Gainful employment is defined as employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation, or employment. It does not apply to charity work.

From age 75, members may only make mandated employer contributions and downsizer contributions.

THE WORK-TEST EXEMPTION

Since 1 July 2019 recent retirees may be able to make voluntary and personal contributions for an additional financial year. The work-test exemption applies where the:

  • Member is between ages 65 and 74,
  • Has a total superannuation balance below $300,000 as at 30 June the previous financial year, and
  • The member met the work test the previous financial year.

The work-test exemption may only be relied on once in a lifetime. A member cannot use the exemption, return to work, and then use the exemption again in a later financial year.

Where a member meets the criteria for either the work-test or work-test exemption, the contributions are still subject to the annual contribution caps of $25,000 for concessional (pre-tax) and $100,000 non-concessional (post-tax).

THE WORK-TEST EXEMPTION AND THE BRING FORWARD RULE

The bring-forward rule allows members under age 65 with a total superannuation balance of less than $1.4 million to make up to three years’ worth of non-concessional contributions in a single year, which is $300,000.

Where a member satisfies the criteria for the work-test exemption and are under age 65, they may trigger the bring-forward rule.

The work-test exemption case study

The work-test exemption presents an important planning opportunity particularly where a client who has recently retired or is looking to retire soon, holds assets outside of superannuation, and are looking to dispose of the assets.

Consider the following hypothetical:
Jason retires in FY18-19, received a salary, and owns a share portfolio of many years with an unrealised capital gain. In FY19-20, he will meet the criteria for the work-test exemption.

Without the work-test exemption, Jason would have to realise his share portfolio capital gain in FY18-19 to contribute the proceeds into superannuation. He would pay tax on his salary plus the realised capital gain.

With the work-test exemption, Jason could defer realising the capital gain of his share portfolio until FY19-20 and still contribute the proceeds. He would pay tax only on the capital gain as he is in receipt of no other income.

A more complex alternative to the above would be to sell part of the share portfolio in the year of retirement i.e. the FY18-19 year. While Jason would pay tax on his salary and part of his realised capital gain, he could make a personal concessional contribution into his superannuation and claim a deduction. The balance of the portfolio would be sold in FY19-20. The benefit of doing so is maximising the amount which can be contributed into superannuation.

LEARN MORE

The work-test exemption presents an important planning opportunity for clients and their advisers. It allows recent retirees with low superannuation balances to boost their retirement savings. If you would like to discuss the Work-Test Exemption further please contact your Bell Potter adviser.

Authored by Jeremy Tyzack – Head of Technical Financial Advice at Bell Potter Securities, September 2019
Important Disclaimer—This information was prepared by Bell Potter Securities Limited ABN 25 006 390 772 AFSL 243480 (Bell Potter) for use by Australian residents. This information is of a general nature and does not take into account your personal objectives, situation or needs. Before making a decision about investing, you should consider your financial requirements and if necessary, seek appropriate independent financial, legal, taxation or other advice. This information is believed to be correct at the time of compilation but is not guaranteed to be accurate, complete or timely. Bell Potter and its related bodies corporate do not accept any liability arising out of the use or distribution of this information. Shares should be considered a long-term investment which may be volatile over the short term and may fall in price. Past performance is not a reliable indicator of future returns.