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What happens if you don't meet the work test?

Once you have met the work test you can make a contribution up to $25,000 concessionally – that is before tax – less any employer superannuation guarantee payment.



To contribute to superannuation after the age of 65 self-managed super fund (SMSF) members must meet the work test. 

This means that you must work in paid employment for 40 hours in any 30-day period in the financial year before you are able to make a contribution to your SMSF. There’s detail around this rule, and it’s important for SMSF trustees to understand it.

“The 30-day rule is not based on months, so you could apply the work test from 15 August to 15 September, for example,” says Liam Shorte, financial planner and director of Verante Financial Planning. 

“Another common misconception is that you must meet this test continuously throughout the year. You only need to meet the test once during the financial year, but it must be before you make the contribution,” he adds.
 
Once you have met the work test you can make a contribution up to $25,000 concessionally – that is before tax – less any employer superannuation guarantee payment.

SMSF members may claim a tax deduction for those contributions using a Notice of intent to claim or vary a deduction for personal super contributions, which needs to be submitted to the Australian Taxation Office’s (ATO) before you finalise your tax return. Many funds now require it at the same time as you make the contribution.
 
“You can also make a non-concessional contribution of up to $100,000 in the same financial year. This may be an after-tax contribution from your own savings, or another source like an inheritance.”

“After the age of 65 you cannot benefit by using the three-year bring forward rule and are restricted to the annual non-concessional $100,000 limit,” says Shorte.

Contributing after the age of 75

Under the ATO’s rules, an SMSF can only accept contributions for a member who is older than 75 that are mandated employer contributions. 

“Also be aware that your super fund cannot accept personal salary sacrifice or non-concessional contributions after this age,” Shorte warns. 
 
However under the proposed downsizing measure introduced in the 2017 federal budget people older than 65 who are downsizing from a home they have lived in for more than 10 years will be able to contribute $300,000 to super from the sale proceeds of the house, regardless of age.

“You do not have to meet any work test and the total super balance limit does not apply. This may help those paying tax on funds outside superannuation by allowing them to transfer funds into this concessionally-taxed environment,” he adds.

The total super balance is a method to determine the value of your super assets on a given date. Any concessional or non-concessional contributions to your SMSF are taken into account when determining the total super balance. 

Maximise wealth when you’re over 65

Ensuring you have enough for a comfortable retirement means putting in place sound investment strategies throughout your life.

“Depending on your circumstances, it’s an idea to use your superannuation as a vehicle in which to park as much of your wealth as possible before you retire. You can always reassess your strategies after you retire,” advises Shorte. 

One way to build your super balance is to use strategies like super splitting, which involves splitting contributions across a couple to make the most of contribution limits. 

Spouse contributions, where one member with a larger income makes contributions to a super fund on behalf of their partner, are another way to maximise the amount in the tax-effective super environment. 

The government co-contribution system is another option for building a super balance when one member is a low-income earner. 

Under this strategy the government will add up to $500 to your super automatically if you make personal after-tax contributions of up to  $1,000 as a low-income earner. 

It’s a great idea to understand the interplay of the superannuation and tax systems to make the most of your situation. 
 
However, Shorte reminds SMSF trustees to always consider the social as well as financial benefits you are missing out on as part of the opportunity cost of working longer. 

“For some, the loss of Centrelink age pension support may outweigh the financial benefit of working when costs of commuting, food and work clothes are factored in,” Shorte adds.
 
“It’s not all about the money so if you enjoy working then go ahead, but structure your finances to make the most of the opportunities in the super system,” he adds. 
 
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