On 10 February, The Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 was passed by both Houses of Parliament and received royal assent on 22 February.
The legislation, which will take effect from 1 July 2022, included a bill which removes the work test for non-concessional and salary sacrificed contributions made by individuals aged between 67 and 75.
Currently, individuals aged 67 and older who wish to make voluntary (i.e. non-mandated) superannuation contributions can only do so if they meet the ‘work test’. To meet the work test, a person must have been gainfully employed for a period of 40 hours during a consecutive 30-day period in the income year in which the contribution is made. Gainfully employed is defined as someone who is employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. A person who does unpaid work or only receives passive investment income does not meet the definition.
Comparison of key features of new law and current law
|New law effective 1 July 2022||Current law|
|Individuals aged between 67 and 75 years can only claim a deduction for personal superannuation contributions if they meet the work test.||Superannuation funds can only accept a personal superannuation contribution from an individual aged between 67 and 75 years if the individual meets the work test.|
|Individuals under 75 years of age may access the bring forward non-concessional contributions rule in a particular financial year.||Individuals under 67 years of age may access the bring forward non-concessional contributions rule in a particular financial year.|
Source: The Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021.
The removal of this work test will now allow all superannuation contribution types for those aged 67 to 75 (except for personal contributions for which the individual seeks to claim a tax deduction). As a result, salary sacrifice, personal non-concessional, voluntary employer (above SG), and small business CGT contributions, would all be permitted up to age 75 without having to first meet a work test.
Impact on Non-Concessional Contributions
Individuals aged between 65 and 75 can now make non-concessional contributions without meeting the work test. Not only can they access the standard contribution cap of $110,000 per annum, they may also be able to utilise the bring forward rule where an individual can bring two years’ worth of this cap into the one year, enabling a potential contribution of up to $330,000 in the one financial year. These contributions remain subject to the total superannuation balance (TSB) cap of $1.7million.
Impact on Concessional Contributions
Individuals aged between 67 and 75 still need to meet the work test to claim a tax deduction for a personal super contribution. This remains unchanged. What has changed though, is the ability to make voluntary salary sacrifice contributions (which are a form of concessional contribution) even if you are not working the hours required to meet the work test. This reflects the intention that all individuals under 75 can have salary sacrificed contributions made in respect of them by their employers.
Individuals are able to access the limited exception to the work test that applies on a ‘one-off’ basis under the existing work tests in the SIS Regulations. As such, an individual who does not meet the work test in the year in which a contribution is made can still claim a deduction for the contribution if they:
- Met the work test in the previous income year;
- Have a total superannuation balance of less than $300,000 in that previous income year; and
- Have not already relied on the ‘one off’ rule in respect of any contribution.
The removal of the work test provides significant planning opportunities for some individuals from 1 July 2022.
- Individuals between 67 and 75 that have large cash reserves, sell assets outside of super, or receive inheritances, can now add up to $110,000 per annum, or up to $330,000 under the bring forward rule to superannuation and maximise the concessionally taxed benefits available (TSB permitting).
- Individuals aged 67 or older that have used their transfer balance cap and have large accumulation balances can now cash out part of these balances and their spouses, if under age 75, can recontribute in their own name (TSB permitting).
- Previously small business owners aged 67 to 75 had to meet the work test to contribute a CGT exempt amount to super. The abolition of this rule now provides small business owners more flexibility to utilise the lifetime CGT concession cap amount of $1,615,000 (21/22). Note: small business concessions are complex and beyond the scope of this article.
- Individuals between 67 and 75 may able to withdraw part of their super where it consists of a large taxable component and recontribute at a later date as a non-concessional contribution to increase the ‘tax-free component’ of their super balance. This can be beneficial where death benefits are likely to be paid to non-tax dependants. This is because the taxable component of a lump sum death benefit paid to a non-tax dependant is subject to tax at 15% (plus Medicare levy), whereas no tax is levied on the ‘tax-free’ component.