Super contributions after age 67 - the trap

From 1 July 2022 the "work test" has been abolished for persons aged 67 to 74. Many people think this opens a ability to make generous concessional contributions perhaps to offset large CGT sales etc. I have seen and heard many people discuss it. Some financial advisers are telling people its a strategy. Well it may not be.

Well the new law contains a nasty trap and it will bite hard. And the way the law was written will defer the problem a year before most realise. But the decision surrounding the contribution could be based on actions a year before that.

So who is affected ?
- People aged over 66 who may have large CGT income who then think they can contribute to super using unused caps incl the carry forward cap of prior years and claim a large deduction.
- The most affected will be those with large CGT income who think it is a tax saving to contribute to super and claim a large deduction.

How are they affected ?
- The age test has been abolished what is the issue ? Well the devil is in the details. The work test will STILL APPLY for personal tax deductible super cotributions. In the past the enforcement occurred at the fund. The fund would refuse or return excessive contributions if a work test declaration wasnt met. So the issue was avoided.
- The new process now defers the test...Until a tax return is LODGED ie 30 June 2023 tax lodgements and onwards
- The new enforcer is the ATO
- The ATO now clearly state " we will be administering the work test at the time they lodge their income tax return."

The ATO now state THEY will CANCEL tax deductible super contributions for people aged 67+ when they dont meet the work test. They will audit affected claims...In a simple test if the person doesnt have income at item 1 of their return they wont be gainfully employed and that will always fail the work test. They fail immediately. But even then the work test will need to consider the NUMBER of hours they were gainfully employed prior to making these large contributions.

Repealing the work test for voluntary super contributions

Younger members will be unaffected.

One strategy that does come to mind is planning large CGT sales and contributions to super BEFORE age issues affect the members.

 

Do voluntary hours worked (eg for charitable organisations/meals on wheels/Vinnies Boutique etc) count as working or must this be paid employment?

 

Pretty sure all the info I have read stated these contributions were not tax-deductible?

 

I always understood it must be paid, and you must work xx (40?) hours in a 30 day period. Probably need pay slips, group certificate etc.

 

No. Gainfully employed is the test. ie Remunerated.

 

Work test
From 1 July 2022 if you are under 75 years of age, you will no longer need to meet the work test to make or receive non-concessional super contributions and salary sacrifice contributions. If you are aged 67-74 years, you will however be required to meet the work test in order to claim a personal superannuation contribution deduction.

To meet the work test, you 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.

This is an annual test. This means once you meet this test you can make contributions for the entire financial year. (ie test first, contribute after !!!! )

Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
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.

ATO can "see" timing of remuneration through single touch payroll. And attack payments outside STP which may be dubious. eg paid by a relative etc

 

What about people running their own business? They may make a profit or make a loss for the financial year.

 

That’s really useful info, and many thanks for taking the time to post it.

A person under 67 can presumably still make a tax deductible / bring forward contribution without satisfying the work test?

 

The work test must be considered by the individual whether self employed or as a employee.

 

What stops people from creating a company that employs them to, say, file corporate paper work and pays them a minimal wage? That might be caught by evasion provisions, but if I do real work for my family trust's corporate trustee why can't it employ me?

 

Falsely claiming to be gainfiully employed likely means a entity must report payments and negative income for what purpose ? Fraud ? Employment is a legal relationship. Not a movement of money. The work test doesnt specifically consider payments BUT the hours associated with worked hours that are paid. Gainfully. And super...workers comp ? Lot of hassles to tick the boxes.

Its why proficient advice is needed to support trusts. ATO may cancel the super where the work test isnt evident. ATO may consider the HOURS worked v a beneficial right to income. Thats one of the risks after July since the ATO assumes the responsibility. for checking work test claims.

 

I suggested truly claiming to be employed. Obviously there would be several forms to lodge, STP to subscribe to etc, but employing someone hasn't been made impossible yet. The federal government even provides a handy guide Hiring employees checklist | business.gov.au