Some important changes relating to the super work test were announced last month.
Here’s a guide to the changes and how they will impact on you if you have a super fund.
Read on to discover some of the opportunities these changes offer, and how they could enable you to make substantial extra contributions and increase the size of your super fund.
The work test, and how it’s carried out
Ever since the super system first became compulsory in 1986, contributions have always been tied to your employment. This means that you needed to be working to make or receive contributions into your super fund.
The work test is the check carried out on anyone who has a super fund to ensure they are gainfully employed and therefore able to contribute and have contributions made on their behalf.
To pass the work test, you must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made.
The test is carried out annually so, once you’ve passed, you can make contributions for the entire financial year. There is a one-off exemption to the work test if your super fund is worth less than $300,000.
Initially the work test applied to everyone but, in 2004, the super rules were changed so the work test only applied to those aged 65 and over.
The test is administered by your super fund, rather than the ATO, although the ATO have the final say in the event of any doubt or dispute.
Changes mean 2 extra years to maximise your super contributions
The changes increase the age you won’t need to have a work test first carried out from 65 to 67.
This means that when you reach 67, you will need to prove you are gainfully employed, which means satisfying the superannuation work test.
It also means that you have two extra years in which you can make super contributions without having to meet the work test. That’s two extra years to maximise contributions and build your super fund.
A big opportunity to top up your super fund
This change obviously opens up opportunity for anyone with large funds whose total super balance is less than the general transfer balance cap, which is currently $1.7 million.
If you are using the work test or work test exemption to make contributions into your super account, you can contribute any amount up to the current concessional and non-concessional contributions caps for that particular financial year.
For 2021/22, the current concessional cap is $27,500 and the non-concessional cap is $110,000.
The bring-forward cap is also increased from age 65 to 67 (this is where you roll up three years of contributions).
This means individuals aged 65 and 66, who were previously unable to access the bring-forward non-concessional contributions cap due to their age, may do so subject to their total super balance.
Also bear in mind that you may also be able to use the bring-forward contribution rules to make a larger contribution during the 12-month exemption period.
These rules allow you to make non-concessional contributions of up to three times the normal annual cap. This means your bring-forward contribution amount could be $110,000 x 3 = $330,000.
There may be even better news to come!
The recent change to the work test is clearly good news, and it looks as though the situation could get even better soon.
In the May 2021 Federal Budget, the government announced that it planned to increase the work test exemption from age 67 to age 74.
This change is not yet law but is expected to apply from 1 July 2022.
We are optimistic about this but aren’t taking anything for granted. It’s best not to count any chickens when it comes to financial changes, given the upheaval caused by the Covid-19 pandemic.
In our view, any liberalisation of pension rules that helps you maximise super contributions is to be very much welcomed.
Get in touch
The changes to the work test could create a great opportunity to add extra contributions to your super fund.
If you’d like to talk this through or would like more information, please get in touch with us.
