Changes to super contribution rules for over 65's
Written and accurate as at: Jul 09, 2020 Current Stats & Facts
From 1 July 2019, new legislation provides an opportunity for recently-retired individuals to contribute to super without needing to meet the work test. This article focuses on the new work test requirements and the work test exemption.
What changes have been made?
Up to 30 June 2020, once you reached age 65, you needed to meet the requirements of a "work test" or "work test exemption" if you wanted to make voluntary contributions (known as non-concessional contributions) into your superannuation account.
The Government has announced that, from 1 July 2020, this age requirement has been lifted from 65 to 67.
How does it work?
From 1 July 2020, to be eligible to contribute to superannuation, the following general requirements need to be met:
- under age 67 - no “work test” is required
- age 67-74 and have met the “work test”, or
- age 67 – 74 and meet the requirements for the “work test exemption”.
What is the superannuation “work test”?
The key thing to understand about making contributions into super if you are aged between 67 and 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.
“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 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.
Are there any exceptions to the work test for those over age 67?
There are two key exceptions to the requirements for those over age 67 who are unable to meet the work test:
1. Work test exemption - From 1 July 2019, a one-off work test exemption was introduced to apply to recent retirees who are unable to meet the above work test requirements. This allows people with a total super balance below $300,000 on 30 June of the previous financial year to make voluntary super contributions for 12 months from the end of the financial year in which they last met the work test. Note that this exemption can only be applied once. Therefore, if you use the exemption to make a contribution to super and later return to work, you can’t use it again when you retire. Please watch our animation, ‘The Work Test Exemption (WTE)’, for a more detailed overview of this condition.
2. Downsizer contributions - downsizer contributions can be made into super after the sale of a person’s principal residence, which they have owned for at least 10 years. To be eligible, you need to be 65 years or older, and a contribution of up to $300,000 must be made within 90 days of the sale. A person's spouse may also be eligible to contribute up to $300,000 if they are 65 years of age or older. There is no upper age limit when applying to downsizer contributions or any work test that applies.
Do contribution caps apply?
It is important to note that superannuation caps and thresholds apply to these contributions. If your Total Super Balance (TSB) across all your super funds as at 30 June the previous year is greater than $1.6m, you will not be eligible to make non-concessional (after-tax) contributions.
Assuming you are aged 67 and above, and the aforementioned contribution requirements are met, the non-concessional (after-tax) cap is $100,000 per annum for 2020/21 (this cap does not apply to the "downsizer contribution" mentioned earlier in this article).
The importance of advice
As always, it is important to ensure that you seek proper advice on the above matters. Speak with a qualified financial adviser or accountant as superannuation contribution rules are fraught with trips and traps.