With each new financial year comes a new raft of proposed changes to taxes and superannuation.
And the financial year beginning July 2019 is no different.
While most Australians are no doubt familiar with the Government’s proposed tax cuts which are due to come into effect over the coming years, one change that fewer people are aware of are the new work test exemption rules.
Today, our personal accountants in Bayside explain what exactly the work test is, and how the newly introduced work test exemption promises to make voluntary contributions easier.
What is the work test? Our personal accountants explain
Turning 65 is one of life’s major milestones – once you blow out the candles however, you’ll quickly realise that it’s now considerably harder to make voluntary contributions to your superannuation fund.
Under Australia’s superannuation system, Australians aged between 65 and 74 are only allowed to make voluntary contributions to their superannuation if they are able to meet certain conditions.
Specifically, they will have to prove that they are gainfully employed (self-employed counts) for a minimum of 40 hours over any period of 30 consecutive days.
This is what’s known as the work test.
Essentially, you’ll only be allowed to deposit money into your super if you can prove you’re working.
Thankfully, the details of the work test are relatively forgiving. The exact arrangement doesn’t matter much – it can be five 3-hour days, full-time work, or 2 hours a day for a month straight.
What’s more, it doesn’t matter what you do either – as long as you’re receive a (legal) income from it, you will satisfy the work test (although domestic arrangements like babysitting are excluded).
All of this conspires to make adding to your super harder than just setting up a recurring BPAY payment and calling it a day!
Introducing work test exemptions
Of course, if the system worked perfectly, there would be no need to change it, would there?
As you can tell by the fact that we’re here having this conversation, the current system has some limitations.
Unforeseen circumstances have forced you to look for work. Your previous employment arrangement ended unexpectedly. It could even be a situation where you want more money in your super before you retire for good.
Whatever the reason, you’re back on the job market. Unfortunately, many seniors have a hard time finding work, as many employers are hesitant to employ seniors.
As a result, some seniors find it difficult to satisfy the work test.
This in turn makes it difficult to add to your super, which can affect your retirement planning.
As of July 2019 however, that’s no longer the case.
Our personal accountants explain…
The Treasury Laws Amendment (Work Test Exemption) Regulations 2018 (Cth) drafted in late 2018 allows for one-off exemptions from the work test. If you meet certain conditions, you will be able to make voluntary super contributions without having to worry about the work test.
If you fulfil all of the following conditions, you may be able to use the work test exemption (or the WTE, as we’re going to call it from here on out).
Condition #1: you’ve met the work test in the previous financial year
Maybe your circumstances have changed, and you’re now having a hard time meeting the work test.
If you’ve been able to prove gainful employment and satisfy the work test during the previous financial year however, you may qualify for a WTE.
Say you retired in February the previous financial year. Even if you have struggled to find gainful employment during the current financial year, the fact that you met the work test during the previous year may qualify you for an exemption.
Of course, that isn’t the only condition you’ll have to meet…
Condition #2: your total superannuation balance is below $300,000
One of the reasons many seniors make voluntary contributions is because of a low super balance.
Perhaps they’ve had to request early access to their super to cope with financial hardship, such as an unexpected medical condition or workplace injury.
As a result, you don’t have enough super savings to comfortably enjoy retirement.
The WTE is designed with the express purpose of helping seniors who may have a smaller super pool to draw from.
With these exemptions, you’ll have an easier time beefing up your super before retirement.
Condition #3: you haven’t already used the work test exemption
The final condition to be eligible for an exemption? You can’t have claimed an exemption in the past.
As we mentioned above, the new legislation only allows for a one-off exemption.
If you’ve used the WTE in a previous financial year to add to your super balance, you won’t be able to use it again. If you want to make further super contributions, you’ll need to meet the work test.
This makes the WTE a single-use exemption – you’ll only be able to use it once in your life.
As such, it’s important that you make the best use of it! Confused? Our personal accountants can help.
How does this affect spousal contributions?
Let’s say your super balance or income is low for whatever reason.
Perhaps you’ve been working part-time for an extended period, your income isn’t as high as your spouse’s, or your super portfolio has only generated middling returns.
Luckily for you, your spouse is willing to help you out by making spouse contributions to your super.
As with all spousal contributions, only individuals with income less than $40,000 per annum will be able to accept spouse super contributions.
However, if you are between the ages of 65 and 70, you will only be able to accept spouse super contributions if you also satisfy the criteria set out by the work test.
And the moment you turn 70, you won’t be able to accept and spouse contributions whatsoever.
The work test exemption will also allow you to accept spouse contributions to your super.
Make the most of your super with a personal accountant in Bayside
With retirement looming large on the horizon, questions of super are no doubt starting to spring up in your mind.
In particular, you’re starting to wonder whether your balance is enough to allow you to live comfortably throughout retirement.
Superannuation is a complex area, with a host of different laws that need to be adhered to – the work test is only one of these rules.
There are literally hundreds of others that need to be considered when making contributions to your super.
Need help navigating the waters? The team of superannuation experts at Bruce Edmunds & Associates can help.
In addition to ensuring that your superannuation adheres to the byzantine web that is Australia’s superannuation laws, our personal accountants will help you control your investment strategy, reducing tax while obtaining tax benefits.
Our team can provide qualified advice about your voluntary super contributions, helping to reorganise your assets and superannuation to help you reach your retirement goals.