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Work test repealed from super regulations

The Government has affected the removal of the work test from the superannuation contribution acceptance rules for those aged 67 to 74. This will apply from 1 July 2022.

A legislative instrument was registered on 3 March 2022 to repeal the current table in SIS regulation 7.04, which sets out the types of contributions that can be accepted for the various age ranges and insert a new table, which applies from 1 July 2022. It is noted that whilst the legislative instrument applies from 3 March 2022, there is a period of 14 sitting days for which a motion to disallow can be made.

The new contribution acceptance table, which applies from 1 July 2022 is as follows:

ItemIf a member …the fund may accept contribution made in respect of the member that are …
1is under 60(a) employer contributions; or 
(b) member contributions
2is not under 60, but is under 75(a) employer contributions; or
(b) member contributions ( including downsizer contributions)
3is not under 75(a) mandated employer contributions; or
(b) downsizer contributions

This new table is modelled on the repealed table, but simplifies the contribution acceptance rules for each of the age groups, removes the work test requirements and, in table items 2 and 3, provides that a regulated superannuation fund may accept downsizer contributions from a member who is 60 years or more (the eligible age for a downsizer contribution is reduced from 65 to 60 as from 1 July 2022).

This is the second step of the two step process to remove the work test for those aged 67 to 74 from the contribution acceptance rules. The first step of the process inserted the work test into the Income Tax Assessment Act 1997 for personal contributions that a person aged 67 to 74 wishes to claim as an income tax deduction, from 1 July 2022.

There is also an amendment to the regulations to make it clear that an SMSF trustee may also accept contributions made in respect of a member, and received on or before the day that is 28 days after the end of the month in which the member turns 75, that are:

(a)employer contributions other than mandated employer contributions; or

(b)member contributions other than downsizer contributions.

These changes provide a couple of interesting opportunities, for example:

  • Whilst the work test will no longer apply from a contribution acceptance perspective, members can still access their superannuation benefits from age 65. That is, there has been no change to the “Attaining age 65″ condition of release, item 106 of the table in Schedule 1 to the SIS Regulations. This provides a wider cohort for the withdrawal and re-contribution strategy;
  • Those aged 65 and 66 can make a personal superannuation contribution and claim a personal income tax deduction, without having to meet the work test. As they have attained age 65, they would have immediate access to those contributions, tax free.

However, whilst the removal of the work test from the contribution acceptance rules has been widely welcomed, care must also be taken where a member, aged 67 to 74, makes a personal contribution which is to be claimed as an income tax deduction. The member will be required to meet the work test. If it is subsequently discovered that they did not meet the work test, whilst they are denied an income tax deduction, it will not have any effect on the SMSF trustee’s acceptance of the contribution, that is, they will not be required to refund it. This means the member contribution will be assessed against the member’s non-concessional cap, rather than their concessional cap, which may have adverse tax consequences for the contributing member, depending on their available non-concessional cap space for that particular income year.

Disclaimer
The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.