From 1 July 2019, an exemption from the work test will apply for the first year in which an individual would be required to pass it.
Under SIS Regulation, a superannuation fund is able to accept a contribution on behalf of a member so long as the member is under 65 years of age. However, if the member is over 65 years of age, varying rules apply.
If the member is over the age of 65, but under the age of 75, a superannuation fund may accept any contribution that is a mandated employer contribution. A mandated employer contribution would include those that are necessary to be made under superannuation guarantee rules.
However, other contributions such as non-concessional contributions can only be accepted if they are in accordance with Part 3 of SIS regulation. It states that the member must have been gainfully employed for at least 40 hours in a 30 consecutive day period in that financial year.
Proposed changes
Under the proposal, an individual over 65 will be able to make contribution in the first year that they do not meet the work test requirements.
Practically, an individual who retires with an Employment Termination Payment does not have to make a quick decision about putting the money into superannuation. They are able to wait and see what their financial situation looks like after their retirement before making any final decisions relating to superannuation.
Example
Peter is 66 years of age and during the 2019/20 financial year, he ceased working from his employer after many years' service. He received a golden handshake, as well as payments for unused leave entitlements.
After finishing employment, Peter was unsure what to do with the final payment he received, as well as the next stage of his life in general. As a result, Peter went on a holiday for a number of months. Upon return, he decided that he would sell his main residence and move from the city to a coastal town elsewhere in the state.
After paying down his debt, transaction and moving costs, Peter had a fair surplus of funds left over.It is now the 2020/21 financial year.
Downsizer contribution - Peter is able to make a downsizer contribution as he is over 65 and has met the other requirements to make the contribution. It is excluded from being a non-concessional contribution.
Non-concessional contributions - Peter is able to make a further contribution to superannuation for the balance of his excess funds. He will be able to utilise an exception to the general rule that you cannot make a non-concessional contribution after age 65. This is because in the 2020/21 financial year, it is the first year he would be ineligible to contribute due to not passing the work test.
After the dust has settled, Peter is able to have all his retirement funds in one easy to understand and review financial product, which is his wishes.
Information sourced using CCH iknow
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