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The Federal Budget in May 2018 included a proposal that would allow more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test if specific circumstances apply.

This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements. This will come into effect from 1 July 2019.

We thought it would be useful to run through what it takes to meet the work test with some examples.

The Basic Rule

If you are aged between 65 and 74 you must satisfy the work test prior to your fund accepting contributions. You must have worked at least 40 hours within 30 consecutive days in a financial year before your fund can accept contributions for you. So, if you work 10 hours per week in any 30 day period or 10 hours over four days, that would be sufficient.

Work in this context means gainful employment. The Superannuation Industry (Supervision) Regulations 1994 - Reg 1.03 defines "gainfully employed" means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

There are two elements here, you must be employed or self-employed and there must be an objective of receiving gain or reward. Let look at some examples.

Passive Income

Passive investment income (such as the receipt of rent, trust distributions or dividends) is not a direct result of actions or exertion in a particular task. A person who only receives passive income would fail to meet the work test.

There have been cases where share traders & gamblers have argued that their activity is a business so would qualify as gainful employment, the ATO would tend to disagree.

Gain or Reward

There is no minimum or monetary value for the gain or reward but there needs to be a correlation between the work done and the 'reward.'  There must be an objective to receive a payment. Previous case law has shown work test can be satisfied provided there is a profit-making objective and a realistic expectation of reward, even if that reward is not received in the same year the work is undertaken.

Unpaid or charity work as a volunteer does not meet the definition of gainful employment as there is no reward.

Working for Family or Friends

The Superannuation Guarantee (Administration) Act 1992 states “A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.” If a member is paid for babysitting or gardening, the circumstances surrounding the arrangement will be critical.  For example, if grandchildren are looked after while their parents are on holiday, the motive for doing so would likely be for personal or domestic reasons rather than to derive financial gain. In this case, the definition of gainful employment may not be satisfied.
If in doubt about the work test, a private ruling should be sought from the ATO.

Please note - the above article is general in nature, it was written without taking into account any individual contractor’s situation or needs, and is not intended as professional advice.

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