Work test exemption ‘quite powerful’ for certain clients
An investment manager has argued that the one-off work test exemption can be “quite powerful” when used in the right situations for clients and is more than just an opportunity for retirees to clean up their financial affairs.
Speaking at a recent Accurium webinar, Challenger technical services manager Rahul Singh highlighted the ways in which the work test exemption that began on 1 July 2019 can be effectively used for clients.
Under the exemption, individuals aged 65 to 74 are allowed to make voluntary contributions to superannuation for an additional 12-month period from the end of the financial year in which they last met the work test, on the condition that the individual’s total superannuation balance (TSB) is less than $300,000.
Mr Singh pointed out the example of a retiring small-business owner where, if an adviser is clever with the work test exemption, they can make super contributions that are allowable within the small business capital gains tax (CGT) cap.
He said such contributions could include the $100,000 non-concessional contributions or, if they have sufficient taxable income, include a higher concessional contribution through the catch-up concessional contribution provisions.
“People think of this exemption as perhaps being trivial and perhaps not adding that much value, just cleaning up affairs for maybe putting $10,000 or $20,000 into super that they might have in the bank,” Mr Singh said.
“Interestingly, I think the exemption can be actually quite powerful. If you think of a scenario where a small-business owner that traditionally hasn’t really contributed to super but intends to contribute to super from the proceeds of selling their business, that can be quite powerful.
“Perhaps if I think about a small-business owner that sells their business in the current financial year, has been working in the business in the current financial year, receives the sales proceeds next financial year and, given they’ve retired in the current financial year won’t meet the super work test, all of a sudden being eligible for small business CGT concessions for the current year disposal could enable $1.515 million of the sales proceeds under the small business CGT cap when they get the proceeds next financial [year].
“So, you can see that the work test exemption in the right circumstances can be quite powerful, and it’s just good to be aware of for clients as the situation might warrant.”
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.