Changes to superannuation legislation in July 2020 have adjusted the rules around age limits and the work test, allowing older workers to continue making superannuation contributions.
Superannuation guarantee contributions made by employers on behalf of employees can be paid into the employee’s super fund, for workers of any age.
For other contributions, (after-tax, pre-tax, government and spouse contributions), individuals need to satisfy a work test before the super fund can accept the contributions.
For downsizer contributions, individuals must be aged 65 or older, but there is no requirement to meet the work test and no maximum age limit.
Age Limit and the Work Test
The work test now applies to people aged 67 up to age 75. Individuals need to have worked at least 40 hours during a consecutive 30-day period in each financial year that contributions are made, up to the non-concessional cap of $100,000.
The work test means people must be ‘gainfully employed’ for those 40 hours. This means the individual must have been paid wages, bonuses, commissions or any other form of taxable employment income. For self-employed people, they must have worked in their own business and received business income.
Volunteer work does not meet the work test, even if you have been paid for expenses incurred during volunteer work.
For workers over 75, the only allowable contributions are employer super guarantee contributions and downsizer contributions.
Further amendments are expected to extend the bring-forward rule for non-concessional contributions to the age of 67 from 65, providing more opportunity to contribute. This change has not passed through parliament yet.
Work Test Exemption
If you satisfied the work test last financial year, and you plan to make contributions this year, you may be exempt from meeting the work test this year. If your total superannuation balance is less than $300,000 at the end of last financial year, and you did not rely on the work test exemption in a previous year, then the work test exemption may apply to you, allowing you to contribute to super in this financial year. The work test exemption can only be used once, allowing people to make voluntary contributions for an additional year.
Non-concessional contributions are made into your super fund after tax and are not taxed again within the fund, up to a limit of $100,000. If you exceed the non-concessional cap you may need to pay the top rate of tax on the excess amount.
There are some exclusions from the non-concessional cap – for example injury settlement and downsizer payments. Your super fund must be notified of exclusions.
Start Planning Now to Maximise Your Super Contributions This Financial Year
Managing super can be complex and there are many rules to understand. Even if you enjoy managing your own superannuation, we recommend an objective review of your superannuation and retirement plans to help you take advantage of contributing to your super for as long as you can.
Alternatively, it may be time to hand over the management of your superannuation – talk to us now to learn more about maximising your super contributions and making the administration of it easy.