Adverse tax outcomes flagged with work contributions
SMSF practitioners may want to hold off on advising clients to make contributions under the work test measure when it’s passed, as some clients could be left in a worse tax position, warns a technical expert.
Speaking at the SMSF Summit in Adelaide, SuperConcepts general manager of technical services and education Peter Burgess said the work test measure that was introduced for retirees will allow super members who are over the age of 65 to make a non-concessional contribution the year after they cease work, which under the current legislation they would not be able to do.
The measure was first announced in the budget this year and is restricted to those with a total superannuation balance below $300,000.
“Essentially, what it’s doing is encouraging people who are over 65 with less than $300,000 in super to make a non-concessional contribution to super,” explained Mr Burgess.
However, he warned SMSF professionals that it may not always be in the client’s interests to contribute to super under this measure, given that it’s restricted to those with lower balances.
“Now, I would think that for a lot of clients in that situation, it’s probably best that they don’t make a contribution to super from a tax perspective,” he cautioned.
“They may not be paying tax outside of super so making a contribution to super and paying 15 per cent tax on the earnings is probably not a good result for them.”
Where the measure might have merit, he said, is for small business owners who are selling their business and don’t have a lot in super.
“This kind of arrangement will give them some extra flexibility to make further contributions even though they haven’t met the work test in a particular year,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.