What is the ‘Work Test’?
Let’s start with some background. The Work Test, or Age Work Test, or Over 65 Work Test, as it is often called, is a rule in place for personal contributions paid into a superannuation account by a member who is 65 years old or over.
The Work Test rule states that if you are aged 65 or older, you may only make personal contributions into super if you were gainfully employed at least 40 hours in a 30 day consecutive period, during the financial year in which you are contributing.
This sounds very simple when you first read it, but let’s break down a few of the finer points:
- Gainfully Employed: This means you must have been employed, or self-employed, and been earning money from that employment. Volunteer work does not count.
- 30 consecutive days: This can be any consecutive 30 day period. It doesn’t have to be in the same month (e.g. You may have worked 40 hours from 15 August 2019 to 14 September 2019 and this would meet the work test requirement)
- At least 40 hours: This is the part of the rule that is often the trickiest.
To explain why this is tricky, I’m going to tell you a story about Sam. Sam has had a regular direct debit set up to make personal contributions into his super account each month and has had this in place for 10 years. Every month, $200 goes out of his account and into super.
On the 5th of May 2018, Sam celebrated his 65th birthday and, on 2 July 2018, his $200 is debited from his account to go into his super fund.
As the 2019 financial year began on 1 July 2018, it is highly unlikely that Sam has already worked 40 hours during the financial year in which his $200 contribution is to be applied, so his contribution would not be able to be accepted by his super fund.
If Sam works 8 hours per day, 5 days a week, the earliest he would be able to make a personal contribution for every financial year after turning 65, would be a week after the beginning of the financial year.
New – Work Test Exemption
From 1 July 2019, the government has introduced a once-off exemption to the work test, which people can use in the first year after retirement, if they meet the following criteria:
- Their Total Superannuation Balance (the total of all superannuation accounts held in their name) is less than $300,000 as at 30 June of the previous financial year.
- They met the work test criteria in the previous financial year
- They have not used this work test exemption previously. It can only be used once in an individual’s lifetime, up to the age of 74.
If someone meets the above criteria, they are permitted to make contributions into superannuation up to the limit for both Concessional and Non-Concessional contributions, including any unused Concessional contribution cap amounts left over from the 2019 financial year onwards.
For more information on contributing to super over the age of 65 or if you have any other queries, please get in touch or call us on 1800 24 23 22.
The information contained in this article is factual and based on our understanding of the legislation. This should not be considered financial advice, as no personal circumstances have been taken into account. If you require financial advice, please speak to your financial adviser. If you do not have a financial adviser, please feel free to contact us and we can put you in contact with someone who may be able to assist.