In the past ‘gainful employment’ has been necessary for those who wish to make a superannuation contribution between the age of 65-75. Gainful employment refers to employment or self-employment for gain or reward in any business, trade or profession. It does not include voluntary work or work associated with your own investments that produces a taxable income. Employment must be for at least 40 hours over 30 consecutive days in the financial year of the contribution. We often refer to this as the ‘Work Test’.
What are the new rules?
From 1 July 2019, the Government has introduced an exemption from the work test for voluntary superannuation contributions in the first financial year after you have retired. This will provide newly retired individuals a further opportunity to be able to add to superannuation. It somewhat serves as a grace period to ensure your affairs are in order and you are financially prepared for retirement. There are a couple of requirements that need to be met in order to qualify for the exemption:
- You must be aged 65-74
- You must have met the work test in the financial year prior to using the exemption
- You must have a total superannuation balance of less than $300,000 (as at 30 June in the financial year prior to contributing)
- You must not have used the exemption previously
What can you contribute during this exemption period?
During the exemption period you can use both the concessional as well as your non-concessional limits. The current concessional (tax-deductible) limit is $25,000 and the current non-concessional limit is $100,000.
Sue, age 67, retires on 1 January 2019. At 30 June 2019 her super balance was $250,000. In August 2019, Sue received an inheritance of $70,000.
As Sue meets all the criteria outlined above, she is able to add part or all of the inheritance to Super as either a concessional (i.e. tax deductible) or non-concessional (no tax deduction) contribution.
Carry Forward Concessional Super Contributions
Concessional contributions, also called before tax or tax-deductible contributions, are those which are added to superannuation without you having to include the amount on your tax return. Instead, a flat 15% tax is levied on the contribution. Concessional contributions include the 9.5% compulsory super guarantee paid by your employer and any salary sacrifice amounts you make.
The current concessional contribution cap is $25,000 per annum.
What are the new rules?
Previously, if you didn’t utilise the full concessional cap (e.g. you contributed less than $25,000) it was reset at the beginning of the new financial year.
The carry-forward provision will now allow super fund members to use their unused concessional contributions limit (or cap) from previous years on a rolling 5 year basis. Catch up contributions are permitted from 1 July 2019 for any unused cap space from the 2018/2019 financial year.
This will make it easier for people with interrupted or irregular work patterns to be able to save for their retirement and to benefit from the tax concessions available through super. It is also beneficial for those approaching retirement who wish to optimise their superannuation contributions.
To be eligible for the carry forward provision your total super balance must be under $500,000 at 30 June in the financial year prior to making the contribution.
If you are under the $500,000 limit, the next step will be to check how much you can carry-forward. This information can generally be found on your annual contributions statement provided by your super fund, Muirfield can also assist with checking this for you.
Graham, 55, has never added extra to superannuation. His employer contributed $9,000 to superannuation in the 2018/2019 financial year. In preparation for retirement Graham decided he would like to maximise his superannuation contributions. He is able to add up to $41,000 as a concessional contribution in the 2019/2020 financial year. This includes $25,000 for the current financial year cap and $16,000 of unused cap from the previous financial year. When making a concessional contribution to superannuation Graham must consider super guaranteed payments his employer will make.