Further traps highlighted with work test changes

The new regulations mean that an SMSF trustee can accept contributions made in respect of a member up to 28 days after the end of the month in which that member turned 75.

These changes mean that from 1 July 2022, a superannuation trustee will no longer be required to ascertain if a member, aged 67 to 74, satisfies the “work test”, including the $300,000 total superannuation balance work test exemption, prior to accepting a contribution, Accurium explained.

However, Accurium stressed that under the new rules, those aged 67 to 74 will need to meet the work test if they wish to claim a personal superannuation deduction for their contribution.

Whilst the firm noted that the “work test” is basically the same as the “work test” that applied in the contribution and acceptance rules in the SIS Regulations, up until 30 June 2022, it is not required to be assessed by the superannuation trustee.

“That is, whether a member, aged 67 to 74 satisfies or not the ‘work test’, to enable then to claim an income tax deduction for a personal contributions, is irrelevant from a contribution acceptance perspective,” Accurium explained.

“However, failing to satisfy the work test, where required, for an income tax deduction claim, will mean that the non-concessional cap applies, rather than the concessional cap. This may result in additional tax.”

The article gave the example of Joey, who retired when he turned 65 in May 2018 and has not been gainfully employed since.

“Excited about the removal of the ‘work test’ from the contribution acceptance rules from 1 July 2022, Joey makes the following contributions in 2022-23 income year:

• July 2022 – $20,000, for which he intends to claim a personal income tax deduction; and
• September 2022 – $330,000, Joey’s 30 June 2022 total superannuation balance is $650,000.”

Accurium explained that in his excitement, Joey hadn’t realised that to claim the $20,000 as a personal income tax deduction and have the amount count towards his concessional cap, he still needed to satisfy the work test.

“That is, being ‘gainfully employed’ for at least 40 hours in 30 consecutive days in the 2022-23 income year,” the firm explained.

As Joey is unable to satisfy the work test, the $20,000 contribution he made will count towards his non-concessional cap, which means he has made $350,000 in non-concessional contributions.

“Joey has therefore exceeded his non-concessional cap by $20,000,” Accurium stated.

“Joey requests the superannuation fund to refund the $20,000 as he did not satisfy the work test for claiming an income tax deduction for a personal superannuation contribution. However, the fund advises that they are not required to check if a member, aged 67 to 74, meets the work test from 1 July 2022.” 

He will now have to wait for the excess contribution cap determination from the ATO, said the actuarial firm.

“Had Joey made the contributions in 2021-22, the superannuation fund would have been required to refund all of his contributions within 30 days of becoming aware that they could not have accepted the contributions as he did not satisfy the work test,” it said.

“So, whilst the removal of the work test from the contribution acceptance rules provides opportunities for those age 67 to 74, it also has a few traps that need to be avoided.”