Mark Ellem, head of education for Accurium, said while the work test has been removed for the purpose of a superannuation fund accepting a contribution from a member aged 67 to 74, it will still apply where the member also intends to claim an income tax deduction for all or part of the personal contribution they have made, unless they meet the requirements of the ‘work test’ exemption.
“To meet the work test, a person must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made,” Mr Ellem said.
“Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. For example, an employee in receipt of salary and wages; a sole trader generating business income.
“If you do unpaid work or only receive passive income, such as interest, dividends, trust distributions or rent, you do not meet the definition of gainfully employed.”
He said if a member between 67 to 74 years wants to claim a tax deduction for personnel superannuation contributions, the ‘work test’ must be satisfied each financial year.
“They can also claim a tax deduction for personal superannuation contributions where they meet the requirements of the ‘work test’ exemption,” he said.
To meet the work test exemption criteria, you must meet three conditions:
- You satisfied the ‘work test’ in the financial year before the year in which you made the contribution
- Your total super balance is less than $300,000 at the end of the previous financial year
- You did not use the work test exemption in a previous financial year
However, it’s important that before a member of any age can claim a deduction for personal super contributions, they must give their superannuation fund a Notice of intent and receive an acknowledgment back from their fund.
“There are strict timelines for the notice of intent that need to be adhered to, to ensure that it is valid,” Mr Ellem said.
“The amount of the personal contribution claimed as an income tax deduction will be counted towards the member’s concessional contribution cap, which is currently $27,500 and will remain so for 2023–24 financial year.
“It will also be included as assessable income of the superannuation fund and taxed at 15 per cent.”
Although there are age restrictions on when members can make personal super contributions, Mr Ellem said even if the member has turned 75, there is a limited time frame in which they can make a final contribution.
“The law does allow a fund to accept a contribution from a member up to 28 days after the end of the month they turn 75,” he said.
“After this time, a superannuation fund can only accept employer-mandated contributions, for example, employer superannuation guarantee (SG) or contributions under the downsizer contribution rules.”
Having SMSF members sign a work test declaration or letter to the SMSF trustee that they have met the 40 hour test has been common in years gone by, and hardly treated seriously. Often there was no consideration given as to whether substantiation existed to support the declaration if it was questioned.
With the work test moving to the ITAA, the taxpayer claiming a personal tax deduction for concessional contributions in 2023 will be required to make a declaration in their personal tax return that they have met the work test.
While some might have not taken a letter to the trustee seriously in the past, they may need to reconsider their position.
For example, if there is no employment/self employment income in the personal tax return, the work test declaration will likely raise a red flag.
Making a false declaration to the Commissioner on your personal income tax return is a much more serious offence.