Depending on your age, the work test is a key test to be contemplated when making contributions to an SMSF. As SMSF trustees, you must be satisfied it has been met before accepting contributions. From 1 July 2020, changes have been made resulting in the work test now applying from age 67, rather than age 65 as it was previously.
There is an exemption to the work test, available subject to satisfying certain criteria, that allows recently retired individuals to make contributions without needing to satisfy the work test requirements in the contribution year.
So what exactly is the work test?
Anyone under the age of 67 can contribute to super without satisfying any employment requirements. In most circumstances, if you are aged 67 to 74 you must satisfy the work test to be eligible to contribute. For clarity, contributions for 74-year old’s must be made within 28 days following the month you turn 75. Neither mandated employer contributions (compulsory) or over-65 downsizer contributions require the work test to be satisfied. In practice you must have satisfied the ‘work test’ prior to making the contribution, as the trustee must be satisfied you have met the conditions to contribute.
The work test requires an individual to undertake at least 40 hours of gainful employment within a period of 30 consecutive days.
The Superannuation Industry (Supervision) Regulations 1994 define gainfully employed as “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment”.
To be considered gainful employment, you must provide a service and be remunerated for it. The ATO has provided further information on what gainfully employed means on their ATO Community forum: “Gain’ or ‘reward’ is the receipt of remuneration such as wages, business income, bonuses and commissions, in return for personal exertion from these activities”.
Voluntary unpaid work does not count as gainful employment. Similarly, trustees who undertake activities such as managing their own investment portfolio would not satisfy the definition of gainful employment.
What is the work test exemption?
As stated above, an exemption to the work test is available, however, you have to meet certain criteria to be eligible. This exemption was introduced from 1 July 2019 for those over age 65, which has now been extended to 67.
The exemption allows you to contribute to super in the year following your retirement, subject to meeting the following criteria:
- You met the work test in the financial year preceding the financial year in which the contribution was made
- Your Total Superannuation Balance was less than $300,000 at the end of the previous financial year
- The work test exemption has not been used in a previous financial year (this means you cannot cease employment, contribute the following year, recommence employment and apply the measure again)
If you make a contribution on the assumption that you will satisfy the work test during a particular financial year, post age 67, failure to meet the test would result in the trustees not being able to accept the contribution and the contribution must be returned within 30 days.
A work test declaration should be signed each financial year in which contributions are made after turning 67. Trustees/members are responsible for ensuring they have met the requirements prior to making contributions and evidence should be retained to substantiate this for audit purposes.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.