An update on work test removal has provided new opportunities for those approaching retirement. Starting from 1 July 2022, individuals aged between 67 and 74 won’t have to satisfy the work test to make or receive non-concessional or salary-sacrificed contributions to their superannuation.
The announcement made in the Federal Budget on 11 May 2021, regarding eliminating the work test for voluntary contributions, is intended to provide older Australians, including self-funded retirees, more flexibility in contributing to their superannuation.
As per the government’s superannuation fact sheet, individuals who are currently 70 years old might have worked for more than 20 years before compulsory superannuation was introduced in 1992. This is why the government has modified the work test regulations to enable retirees who did not have the opportunity to benefit from compulsory superannuation during their working years to maximise their returns from the superannuation system.
What is a Work Test?
Work test in superannuation is an eligibility criterion for Australians to make contributions to their superannuation accounts.
The work test applies to individuals between the ages of 67 and 74, requiring them to have worked at least 40 hours in a 30-day consecutive period within a financial year before their super fund can accept voluntary contributions on their behalf.
how work test removal affects you?
Starting from 1 July 2022, individuals aged between 67 and 74 won’t be required to satisfy the work test for non-concessional or salary-sacrificed contributions to superannuation, as the work test for voluntary contributions will be removed completely.
Additionally, you will be eligible for the non-concessional bring-forward arrangement if you meet the relevant eligibility criteria. However, the $1.7 million lifetime superannuation contributions cap and the annual concessional and non-concessional caps will continue to apply.
It’s worth noting that concessional personal deductible contributions for individuals aged 67 to 74 will still be subject to the work test requirements.
To learn more, check out Australian Tax Office (ATO) page on how work test removal will affect you and your super funds.
How to meet the work test exemption criteria?
A one-year exemption from the work test was introduced as part of the 2018-19 Federal Budget. This exemption allowed individuals between the ages of 67 and 74, with a total superannuation balance below $300,000, to make voluntary contributions for a period of 12 months from the end of the financial year in which they last met the work test. Significantly, work test exemption can be utilised once in a lifetime.
If you are in a defined benefit fund you cannot use the work test exemption. However, you can choose to open an accumulation account with another super fund to make voluntary contributions using the work test exemption.
To be eligible for the work test removal, you need to satisfy three conditions:
- You satisfied the work test in the financial year before the year in which you made the contribution.
- Your total super balance is less than $300,000 at the end of the previous financial year.
- You did not use the work test exemption in the previous financial year.
- From 1 July 2022, the work test will no longer apply to voluntary super contributions for those aged 67 to 74.
- This change will give older Australians greater flexibility to contribute to their superannuation.
- The existing $1.7 million cap on lifetime superannuation contributions will continue to apply.
- The annual concessional and non-concessional caps will also continue to apply.
- Access to personal concessional contributions for those aged 67 to 74 will still be subject to meeting the work test.
- The work test exemption allows those aged 67 to 74 with a total super balance below $300,000 to make personal concessional contributions for up to 12 months from the end of the financial year in which they last met the work test.
By eliminating the work test requirement for individuals aged 67 to 74, except for claiming deductions on personal concessional contributions, more opportunities are created for people nearing retirement or who have recently retired to implement voluntary superannuation contribution plans over a longer period than before. The extension of the age limit for activating bring-forward contributions provides even more options for contributing during this period.
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