Clarity provided on confusing aspect of work test changes

“Some advisers are asking whether a phase-out rule will apply to limit a member’s ability to make NCCs under the bring-forward rules as they approached age 75,” said Mr Day.

“The answer to this is no – the recent amendments do not include any phase out rules.”

The changes to the non-concessional contribution (NCC) bring-forward rules were included in Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Act 2022, which received royal assent on 22 February.

Mr Day explained that the act confirms that a member under age 75 at any time in a financial year is able to make non-concessional contributions of up to three times the annual non-concessional cap in that financial year from 2022-23 onwards.

“This means 74-year-olds will be able to access the bring-forward rule to make NCCs of up to $330,000 in the same way that 66-year-olds currently can currently. The only difference being that a member will still be able to make personal NCC contributions up until 28 days after the end of the month the member turned 75,” he explained.

“For example, a member who turns 75 in July this year who satisfies all other eligibility criteria and who has the available cap space will be able to make an NCC of up to $330,000, by 28 August.”

Mr Day said the confusion seems to stem from the wording in paragraph 4.29 in the explanatory memorandum to the bill, which seems to imply that some kind of phase-out rule applies to prevent members from bringing forward cap amounts from future years where the member will be over age 75 and no longer able to make non-concessional contributions.

“However, this is not reflected in the wording of the act,” he said.

SMSF Association deputy chief executive Peter Burgess noted that when Treasury first announced the measure in the budget, its initial thinking was that a phase-out rule would likely apply to the measure, which has likely lead to some of the confusion in the industry.

“The thinking by Treasury [at the time] was that someone who was 74 who can bring forward $330 would be essentially be accessing a few years into the future when they ordinarily wouldn’t be able to,” explained Mr Burgess

“However, when the law was changed in February this year, there was no phase-out period. I suspect they were concerned about making it too complex and a phase-out may have given rise to inadvertent breaches of the contribution caps.”

After the amendments were released late last year, Mr Burgess said the SMSF association sought clarification from Treasury, with Treasury confirming there would be no phase-out period.

Mr Day noted that the ATO has also recently updated its website that is consistent with the wording in the act.

“So advisers can be confident the new rules will allow a member who is under age 75 at any time in a financial year to make NCCs of up to $330,000 in that financial year from 2022-23 onwards and that no phase-out rule will apply,” he said.

“However, it’s important to remember that a member between age 67 and 74 (including up to 28 days after the end of the month in which the member 75) will still need to satisfy the work test (or the work test exemption) in order to claim a tax deduction for their contribution.”