Work test exemption rules still causing confusion
While the new work test exemption presents a number of opportunities for SMSF clients, there is still some confusion around how the exemption operates in terms of age restrictions and when it can be used, a technical expert warns.
Speaking at the recent SMSF Association Technical Day, MLC technical services manager Jenneke Mills said measures introduced in the 2018 budget allowed trustees aged 65–74 to continue making super contributions even if they did not plan to work in the coming year.
“That exemption has now been legislated, but the way it operates is not that you get to apply it whenever you want; there are some important rules that you’ll need to follow,” Ms Mills said.
She noted that as a new measure, there was still some confusion among advisers and accountants about how the exemption could be used, including the age restriction and the length of time since the client had retired.
“It’s important to note that [the measure] doesn’t raise the upper age limit on personal contributions — it’s not the case that you could use this for a client when they’re 80 if they meet all the other criteria,” Ms Mills said.
“They also need to have passed the work test in the financial year immediately prior, so if I retire four years ago, I can’t now come to you and say can I apply the work test exemption to make a contribution — they need to have done that 40 hours of a 30-day period in the last year.
“It also applies on a one-off ‘use it and lose it’ basis, so we’ve always got to ask the question: Has a client applied the exemption before we apply it for a new financial year?”
Provided clients met this criteria, however, there were a number of options they could use to maximise their contributions in the year they decided to use the exemption, she said.
“The good news about this one is it can apply across different contribution types, so concessional contributions, bring-forward contributions, non-concessional contributions, any types of contributions that require the work test,” Ms Mills said.
“While the original legislation said you cannot rely on the exemption to trigger the bring-forward, that was actually not in the bill that was passed through parliament, so what that means is a client can rely on the exemption to trigger and use the bring-forward.”
However, clients needed to be mindful of age restrictions when using the bring-forward rule in combination with the work test exemption, as the usual age rules still applied, she said.