Tom is a 68-year old former engineer who retired in January
2019. He spends his days tending to his garden, and playing golf
at his local course where he also does some unpaid work in the
pro-shop. He has a range of passive investments which take his
taxable income to $110,000 per year. He recently sold a bundle
of bank shares for $290,000.
Under the current rules, Tom could not contribute the sale
proceeds to superannuation as he is 68 and does not work
the required 40 hours over a 30 day period (unremunerated,
volunteer work does not count). The $290,000 would therefore
be trapped outside of superannuation, unless Tom returned to
the workforce and met the work test by age 75.
Under the Government’s new law, however, without having
to meet the work test, Tom would be permitted to invest the
proceeds inside superannuation. Assume those proceeds earned
9.4% per annum (the median growth investment option for super
funds in 2017-18). The tax payable on those earnings would be
$4,089 ($27,260 x 15%). If Tom’s account was in pension mode,
the earnings would be tax free.
Under the old law, with the proceeds outside
superannuation,assume Tom found an equally attractive
investment vehicle with the same rate of return. He would pay
$10,631 in tax per year ($27,260 earnings x 39% personal tax
rate, including Medicare levy). Thus, under the new law, Tom
would more than $6,500 better off per year (or $10,631 if his
account is in pension mode).
The ability to carry forward the unused portion of superannuation
concessional contribution cap may come in particularly handy for:
• Those who are returning to the workforce, such as parents who
have taken time out to look after new-born children
• Those whose income has increased from prior years, such as
individuals who now work full-time or who have been promoted
• Those who have received a one-off windfall gain.
One of the main forms of concessional contributions that an employee
could utilise for a catch-up contribution is salary sacrifice.
The following steps are involved in salary sacrificing to
1. The employee and the employer enter into a written salary sacrifice
agreement, setting out the name of each party, the commencement
date of the arrangement (it cannot be backdated), the amount to
be sacrificed each pay period etc.
2. Each pay period, the employer pays the nominated sacrificed
amount directly to the employee’s superannuation fund. No tax
is withheld from this amount, and the employee must have no
access to this amount.
Because the amount sacrificed is not subject to income tax, employees
will improve their overall tax position by implementing a salary
If your employer does not offer salary sacrifice, or you do not wish
to be locked into a salary sacrifice agreement, the other main form
of concessional catch-up contribution you could make is an after-tax
contribution that you can claim as a deduction
(see page 15).
Having met the conditions, you can claim the full amount of the
contribution (up to the concessional contribution caps – see later) in
your personal tax return at Label D12.
The suspension of the work test, will enable taxpayers aged 65 to 75
who are no longer working, or only working a few hours per week,
to contribute to superannuation and enjoy the tax concessions that it
RELAXATION OF THE WORK TEST
Treasury Laws Amendment (Work Test Exemption) Regulations
2018 (the Regulations) was registered on 7 December 2018. It
provides a one-year exemption from the work test for superannuation
contributions to allow recent retirees to boost their superannuation
balances. Currently, individuals aged 65 to 74 years must work
a minimum number of hours during a particular period in the
financial year in order to keep making voluntary contributions
to superannuation (known as the work test). From 1 July 2019,
individuals aged 65 to 74 years with total superannuation balances
below $300,000 can make voluntary contributions to superannuation
for 12 months from the end of the financial year in which they last met
the work test.
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