Once you turn 65 you can typically access your super savings. But many of us are not ready to retire at 65, and might be keen to make some voluntary contributions to boost retirement savings while we still can. However, the contribution rules for people over 65 vary depending on the type of contribution, and it’s important to understand how these rules work.
One of these rules – the work test – changed very recently. Increasing the age threshold from 65 to 67 from 1 July 2020 means there is an additional opportunity for those who are approaching, or have recently retired, to implement voluntary super contribution strategies over a broader time horizon than was previously possible.
Can I contribute to my super in my late 60s?
Yes, you can, but you need to understand the rules.
Contributions can essentially take one of two forms:
Mandated employer contributions – contributions made by an employer under a law or industrial agreement for the benefit of a fund member. They include super guarantee contributions.
There is no age restriction for mandated employer contributions. A super fund can accept mandated employer contributions for members at any time, regardless of their age or the number of hours they’re working.
Voluntary contributions – which include non-mandated employer contributions (for example, salary sacrificed contributions), personal contributions, spouse contributions, government contributions and downsizer contributions. Voluntary contributions may be concessional (made before-tax) or non-concessional (made after-tax). Age thresholds apply to voluntary contributions.
A closer look at the age thresholds
From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home. There is no upper age threshold. Click here for more details on the downsizer contribution.
Personal contributions and the ‘work test’
Up until age 66, you can make personal contributions, regardless of whether you’re working, or the number of hours that you’re working.
However, once you turn 67, the rules change.
The first thing to remember is that anyone age 67 or over must satisfy a ‘work test’ before contributing to super. If you satisfy the work test you can make either or both concessional (tax deductible) or non-concessional contributions to your superannuation fund. Until 1 July 2020, the work test applied from age 65, but this was pushed out to 67 to align the work test with the eligibility age for the age pension (currently legislated to increase from age 66 to age 67 for both men and women by 1 July 2023).
Once you turn 75 you can no longer make voluntary contributions to super. Your employer can still make compulsory super guarantee contributions, as age has no bearing on madated employer contributions.
What is the ‘work test’?
In order to make voluntary contributions to your super once you turn 67, you must be able to show that you have been gainfully employed on at least a part time basis during the financial year in which you make the contribution. This is called the ‘work test’.
What is ‘gainful employment’
The ATO defines ‘gainful employment’ as being “employed or self-employed for gain and reward in any business, trade, profession, vocation, calling, occupation or employment”.
That means working and getting paid for it.
The ‘gainful employment’ needs to consist of at least 40 hours in a 30 consecutive day period during the financial year. How you accrue the hours is up to you. For example, you could work five hours every Tuesday and Wednesday for four consecutive weeks to meet the minimum hours – as long as those weeks are prior to 30 June.
‘Gainful employment’ does not include voluntary work and rarely includes earning a passive income or ad hoc income of a domestic nature, such as being paid to house-sit for a friend.
You don’t need to receive the income directly to be classified as gainfully employed; you can choose to salary sacrifice part or all of it.
If you’re a sole trader or in a partnership, you generally don’t have to make compulsory super guarantee (SG) payments for yourself. However, you can still make personal contributions to your super, provided you meet the work test. Regardless of whether you’re self-employed or not, you should be able to claim a full tax deduction for after-tax contributions you make into super under the work test.
How can a self-employed person prove that they satisfy the work test?
Invoices and/or pay slips will provide evidence for the work test. Factors suggesting the person is genuinely carrying on a business, and that the work was done and paid for legitimately – at a commercial rate – will be relevant here. It’s wise to keep records such as diary entries and notes as evidence of your gainful employment.
As with regular voluntary contributions to your super prior to turning 67, contribution caps still apply to your payments. These are the maximum amounts you can voluntarily contribute in order to gain the tax concession. In 2020-2021, the caps are:
Before tax contributions cap: $25,000
After tax contributions cap: $100,000
Being over 67 doesn’t disqualify you from the government super co-contribution or making a voluntary payment to your partner’s super through spouse contributions. If you want to take these actions, the first step is to pass the work test.
The super co-contribution helps eligible low-to-middle income earners save for their retirement. If you’re eligible and you make personal super contributions, the government will match your contribution up to certain limits, unless you have claimed your contribution as a tax deduction. For more information, visit https://mcinvest.com.au/co-contributions/
How to apply the work test
At the end of the financial year in which you’ve made voluntary contributions, you’ll need to make a ‘work test declaration’. This involves some fairly straightforward paperwork, which ends with the trustees of the super fund confirming that they have received your contribution. Once you have that letter, you can make a claim for a deduction via your tax return. Your super fund will be able to step you through the process.
For more detailed information on claiming a deduction for a super contribution, visit https://mcinvest.com.au/deductible-contributions/
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