SMSF Work Test Rules
The SIS regulates when a SMSF can accept a contribution. A “work test” or a “work test exemption” is not required to be satisfied to make any type of contribution to a SMSF if you are under 75. An exception is a downsizer contribution which can only be made if you are aged 55 years or older. A member who is turning 75 years old has an extension to make contributions by 28 days after the month in which they turn 75 (includes the 28th day).
Removing the work test for voluntary contributions means you no longer need to meet the work test criteria when making or receiving non-concessional super contributions or salary sacrifice contributions up to the age of 75. The annual concessional and non-concessional caps continue to apply.
It is crucial to read your fund’s governing rules which can restrict the acceptance of contributions even though the superannuation legislation may allow it.
The Income Tax Act regulates when a member can claim a personal tax deduction for personal super contributions made to their SMSF. The Tax Act also regulates the caps on employer and personal super contributions. Contributing more than the caps may result in additional tax or the excess may be fully or partly released back to you.
This article is concentrating on the work test and work test exemption.
Please refer to our resource page in relation to the requirements for claiming a personal superannuation tax deduction.
What are the Changes to the Superannuation Work Test?
The SIS definition of a work test required that an individual is “gainfully employed” (refer below) for at least 40 hours in 30 days prior to a contribution being made and in the same financial year it was made.
Under the SIS regulations, before 1 July 2020, the SMSF trustee could accept all contributions for members under age 65 (except for a downsizer contribution). At 65 and over (up to 75) the SMSF trustee had to be satisfied that a member passed the work test in order to accept personal super contributions (concessional, non-concessional or CGT small business contributions), voluntary non mandated employer contributions (above a member’s SGC or award obligations), government co-contributions and spouse contributions. Downsizer contributions are not subject to the work test.
From 1 July 2020 the work test only had to be satisfied when you turned 67 and still under 75.
The work test changed significantly on 1 July 2022. The work test was moved from the superannuation regulations 7.04 to the income tax assessment act s290-165 (1A) in relation to the eligibility of a SMSF to accept an age-based contribution from a member. A SMSF trustee can now accept all employer and personal super contributions up to when a member turns 75 (plus an additional 28 days after the month in which a member turns 75).
The income tax act governs the eligibility of a member to claim a tax deduction for personal super contributions and for an employer to claim a tax deduction for superannuation contributions.
A member who is aged between 67 and 74 years old (prior to turning 75) must pass a work test or meet the work test exemption to be eligible to claim a personal superannuation tax deduction. A member under 18 is not required to meet the work test but must have derived income from carrying on a business or be an employee for Superannuation Guarantee Charge (SGC) purposes to claim a personal superannuation tax deduction.
What are the new Work Test Rules?
An individual aged 67 and to 74 years old at the time of making the contribution must satisfy the work test or work test exemption (see below) to claim an income tax deduction for personal contributions made.
The individual must meet the definition of gainfully employed (see below) for at least 40 hours during a consecutive 30-day period, at any time, during the financial year.
The ATO now has to be satisfied that the work test has been met. The best evidence for this will be the lodgement of the individual’s tax return claiming the personal super deduction where you will be required to sign a declaration that you meet a work test. It is crucial that the correct paperwork has been done and the member’s tax return lodged at the appropriate time.
Please refer to our resource page in relation to the requirements for claiming a personal superannuation tax deduction.
What is the Work Test Exemption?
The government introduced a one-off exemption to the work test. It was introduced to enable retirees to boost their retirement balances for members with low superannuation accounts after they cease employment.
It was introduced from 1 July 2019 and the following work test exemption criteria must be met:
- the work test was met in the previous financial year
- the member’s total superannuation balance (generally, the total of super across all the member’s super funds including retirement phase value of your pension and accumulation accounts) from the previous 30th June must not exceed $300,000
- not previously applied the work test exemption
Do you have to Use the Work Test or Work Test Exemption when Making Voluntary Personal Non Concessional Contributions?
Starting from 1 July 2022, individuals under 75 are not obligated to meet the work test or the work test exemption when making voluntary contributions from after-tax sources, provided they are not claiming a personal tax deduction for those contributions.
What does it Mean to be Gainfully Employed?
Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. It usually does not include voluntary work, unpaid work such as babysitting your grandchildren or passive investment income such as dividends, interest and trust distributions. It can include business income, director’s fees, sales commission and salary. A director of a company is specifically included as an employee when the director is entitled to payment for duties performed as a director.
Frequently Asked Questions About the Work Test
I am 68 – What happens if I don’t meet the new work test requirements to make a personal super tax deduction?
As the SIS work test has been removed the SMSF trustee can accept the contribution and thus it is not an ineligible contribution which is required to be returned to the member. The contribution may be treated as a non-concessional contribution and subject to the non-concessional caps. It is possible the member may have excess non-concessional contributions which, generally, can be released from the fund but deemed associated earnings are included in the member’s tax return. However, it is worth checking if the member is eligible to access the work test exemption.
How can I qualify for the work test exemption if I recently retired?
If you are 67 years of age and not turned 75 and you want to utilise the balance of your eligible carry forward unused concessional contributions in say 2023 financial year being the year after you retired and ceased working you may use the work test exemption if your total super balance at 30 June 2022 does not exceed $300,000, you have not used it previously and you passed the work test (refer above) in the year ended 30 June 2022.
Are there age limits for making voluntary contributions under the work test?
A SMSF trustee is able to accept voluntary super contributions for members under 75 such as:
- salary sacrifice contributions
- personal contributions
- employer contributions above SGC or award super
- CGT small business contributions
- government co-contributions
However, there are age limits if you want to claim a personal superannuation deduction in your tax return. If you are over 67 years old but not turned 75 you must meet the work test or work test exemption to be eligible to claim a personal tax deduction.
How do the work test rules affect my ability to make contributions in the new financial year?
The work test, in the financial year in which you make a personal superannuation contribution, must be met at any time during the same financial year to be eligible to claim a personal super tax deduction.
I am 74 and inherited $300,000 – can I contribute that into my SMSF even though I retired last financial year and have not worked in the current 2025 financial year?
Provided you are under 75 when the contribution is made you may be able to contribute $360,000 to your SMSF as a non-concessional member contribution (after tax money) provided you have not triggered your bring forward arrangement and your total super balance as at 30 June 2024 did not exceed $1.66 million.
Ensure your non-concessional contributions (from all sources) did not exceed the non-concessional cap in the prior 2 years which was $110,000 annually or if they did it is the balance of a previous bring forward arrangement which ended at 30 June 2024. Your total super balance includes all your superannuation balances across all funds including accumulation accounts and retirement phase pension value.
Furthermore, it may be possible to claim part of the contribution as a personal superannuation tax deduction. To do this you must pass the work test in the 2025 financial year which can be after the contribution is made but prior to 30 June 2025.
You must became gainfully employed at any time, during the financial year. Being paid for working as a casual bartender at the local pub for 40 hours in 30 days in May 2025 would meet the definition of being gainfully employed. You can only make a concessional contribution up to the cap which is $30,000 for the 2025 year.
You must also complete the intent to claim a member concessional contribution and the trustee acknowledges the contribution which must be done on a timely basis (Please refer to our resource page in relation to the requirements for claiming a personal superannuation tax deduction).
Alternatively you may meet the criteria for a work test exemption (refer to above discussion) to claim a personal tax deduction if you are unable to meet the work test in the 2025 year.
Tip – ensure you have sufficient taxable income to absorb the superannuation contribution deduction as you are unable to claim a deduction if it gives rise to a tax loss.
Key Takeaways
- a SMSF trustee, from 1 July 2022, can accept all contributions for a member up to age 75 without meeting a work test or work test exemption except for a downsizer contribution which can only be accepted when a member is 55 or older
- work test criteria or a work test exemption must be met to claim a personal super tax deduction if aged 67 to 74 years old
- an individual must be gainfully employed for 40 hours across a 30 day period to meet the work test at any time during a financial year in which the contribution is made
- unpaid work is not considered to be gainfully employed for gain or reward
- only mandated contributions and downsizer contributions can be made after turning 75 years of age apart from contributions made 28 days after an individual turned 75 but the contributions are attributable to a period prior to them turning 75
Do you need help with understanding SMSF Work Test Rules?
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