The SMSF work test relates to member contributions into a self managed superannuation fund (SMSF).
A SMSF has two phases: accumulation phase and pension phase.
Super contributions can only be made to an accumulation account.
This is a tax-effective way to accumulate wealth for eventual retirement.
Upon retirement, SMSF members generally convert some or all of their accumulation balance to an income stream.
Converting accumulation savings to an income stream is referred to as pension phase, drawdown phase or retirement phase.
Each of these terms have the same meaning.
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The same work test rules apply to both SMSF members and non-SMSF superannuation members.
SMSF Work Test Under Age 65
SMSF members under age 65 can make contributions freely to the SMSF, up to the relevant contribution caps.
There is no work test requirements for SMSF members under age 65.
SMSF Work Test Over Age 65
SMSF members aged between 65 and 75 must meet superannuation work test requirements in order for the SMSF to receive contributions.
A SMSF, being a regulated superannuation fund, can only accept certain contributions made by a member over 65 if the SMSF member has been gainfully employed on at least a part-time basis in the financial year in which the contribution is made.
For the purposes of the SMSF work test, part-time is defined as working at least 40 hours over a period of no more than 30 consecutive days.
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To make contributions, a SMSF member will always need to consider standard contribution caps.
Members aged 75 or over are unable to make or receive contributions, other than mandated employer contributions, even if they meet the SMSF work test.
Specifically, the last time a person over age 75 can make personal contributions is 28 days after the end of the month in which they turned age 75.
Mandated employer contributions have no age limit.
SMSF Work Test Exceptions
The SMSF work test does not need to be met by SMSF members over age 65 if they are making home downsizer contributions or the contributions are madatory employer contributions.
The SMSF work test is also not applied from 1 July 2019 in the first year of retirement for members with a total superannuation balance below $300,000.
The first year of retirement is defined as the first 12 months after the financial year that they last met the work test.
For example, if an individual stopped work on 30 September 2019 and had a total super balance below $300,000, that person would be eligible to make concessional or non-concessional contributions for the whole of the 2020/21 financial year, without satisfying the work test.
Eligibility is only assessed once. That is, there is no requirement to remain under the $300,000 balance for the whole 12-month period.
However, standard contribution caps will still apply.
SMSF Work Test Contribution Types
There is a non-concessional contribution cap and a concessional contribution cap.
The non-concessional contribution cap is currently $100,000 per person, per financial year.
However, more can be contributed using the bring-forward rule, while under age 65.
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Non-concessional contributions are contributions made into a SMSF where a tax deduction has not been claimed in respect of the contribution.
Non-concessional contributions cannot be made if the member has a total superannuation balance exceeding the Transfer Balance Cap, or if the contribution would cause the Transfer Balance Cap to be exceeded.
Excess non-concessional contributions may incur excess non-concessional contributions tax.
The concessional contribution cap is $25,000 per person, per financial year.
However, more may be able to be contributed using the unused concessional cap carry forward rules.
Concessional contributions are contributions made to the SMSF where the contributor has claimed a tax deduction.