When the work test was embedded in the SIS Act, it served as a prerequisite to allowing a trustee to accept contributions for anyone over the age of 67. However, from 1 July 2022, with the work test now residing in the Tax Act, barriers to individuals making voluntary contributions to superannuation have largely been removed.
This means the work test no longer applies to any of the following contributions:
- Spouse contributions
- Salary sacrifice contributions
- Small business CGT contributions
- Personal injury contributions
- Foreign fund transfers
- COVID-19 re-contributions.
However, the work test continues to apply to members aged 67 – 75 who want to claim a tax deduction for personal contributions made to super. That is, a member who was aged 67 to 75 at the time a personal contribution is made, can only claim a tax deduction for that contribution if they have been gainfully employed at least 40 hours over 30 consecutive days during the financial year. Importantly though, the work test no longer needs to be satisfied prior to making the contribution.
Where a member aged over 67 does not meet the work test in the year the contribution is made, the only other way to claim a tax deduction for their personal contribution(s) is to rely on the work test exemption. This one-off work test exemption allows members with a TSB of less than $300,000 at 30 June prior, and who satisfied the work test in the financial year immediately before the relevant contribution was made, to claim a tax deduction for personal contributions. This means:
- For some people, contributing before 30 June 2023 may be the last opportunity to enable them to claim a tax deduction – i.e. those who retired in the 2021/22 financial year and had a TSB of less than $300,000 on 30 June 2022, and
- Anybody who retired in 2022/23 may still have the option of claiming a tax deduction for personal contributions they make in 2023/24, provided their TSB is less than $300,000 on 30 June 2023.
If a member is claiming a tax deduction for any personal super contributions, a valid notice is required, and the deduction can only be claimed in the year the contribution is made.
A valid notice must be lodged by the earlier of, the end of the following financial year, or the date the member’s tax return is lodged for the year the contribution is made. It’s also important to ensure that a valid notice is lodged prior to the contribution being withdrawn as a lump sum, rolled over to another provider, or used to fund the start of an income stream. This notice must be acknowledged by the fund before the member lodges their tax return.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.