The WTE regulations, namely, Treasury Laws Amendment (Work Test Exemption) Regulations 2018 (Cth), which amended the age-based rules that apply to accept voluntary super contributions (i.e., contributions that are not mandated employer contributions or downsizer contributions) were finalised on 7 December 2018.

This article provides guidance on how the WTE operates. Further, it clarifies that the original proposal to preclude individuals from triggering a bring-forward of non-concessional contributions (NCCs) under the exemption has been removed.

The work test exemption

Under existing contribution rules, a person aged 65 to 74 must be gainfully employed for at least 40 hours in any 30 consecutive day period in a financial year to make voluntary contributions to superannuation unless the contribution is received from a member within 28 days after the end of the month in which they attain 75. However, both downsizer and mandated employer contributions can be made to a fund after a member attains 65 years without age restriction.

The WTE changes expand the acceptance rules for recent retirees effective from 1 July 2019. In broad terms, the exemption operates to allow persons in the above age brackets to make voluntary contributions to super where they do not satisfy the work test provided that:

• The member satisfied the work test in the financial year prior to the financial year in which the contributions are made.
• The member had a total superannuation balance (TSB) of less than $300,000 at the end of the previous financial year.
• No contributions have been accepted by a regulated superannuation fund in respect of the member under the WTE in a prior financial year.

Thus, the WTE provides additional flexibility for recent retirees who are subject to age-based limits to contribute amounts into superannuation for FY 2020 onwards, subject to them having a TSB of less than $300,000 on the 30 June prior to the year of the contribution.

Importantly, the exemption has no impact on a person’s capacity to contribute a particular amount within their contribution caps. This means that any contribution made pursuant to the exemption will be tested against the applicable concessional and NCC caps.

Original proposal — interaction with the bring-forward rules

The WTE was first announced in the 2018–19 Federal Budget as part of the More Choices for a Longer Life package, and a public consultation followed in October 2018.

As part of the consultation process, Treasury released draft legislation to accompany the draft regulations for the WTE that would, if enacted, preclude contributions made pursuant to the exemption from triggering a bring-forward of NCCs.

In the draft explanatory memorandum, Treasury stated that the purpose of proposed legislative was to ensure the exemption changes:

…operate as intended by preventing an individual accessing a benefit up to the value of providing a three year work test exemption period as a result of an interaction between the work test rules and the bring forward arrangements for non-concessional contributions in the ITAA 1997.

This is achieved by amendments to ensure contributions made relying on the work test exemption are excluded when assessing eligibility for the bring forward arrangements for non-concessional contributions.

However, fortunately the Federal Government backed down from this proposal after receiving industry feedback that restricting access to the bring-forward rule on this basis would introduce unwelcome complexity into an already complex system.

Accordingly, the WTE can now be used in conjunction with the bring-forward rule for NCCs.

Further, the WTE can also be used in conjunction with the rolling 5-year carry forward of unused concessional contribution cap space subject to the relevant conditions being satisfied.

How can this be used?

To illustrate how the WTE operates with NCCs, consider the following examples.

Example 1

Sam wishes to trigger a 3-year bring-forward of NCCs but he is turning 65 on 1 August 2019 and he will not be gainfully employed in FY2020.

Sam satisfied the WTE in FY2019 and his TSB on 30 June 2019 was less than $300,000.

Sam is eligible to access a 3-year bring-forward of NCCs (ie, $300,000) by having NCCs in FY2020 that are greater than the annual NCC cap due to, among other things, him:

• having a TSB less than the general transfer balance cap;
• being under 65 years of age at any time in the financial year; and
• not having a bring-forward period that is currently in operation in respect of FY2020.

Accordingly, Sam can trigger a bring-forward by making NCCs in July 2019 when he is still under 65, or under the WTE for the period of 1 August 2019 to 30 June 2020.

Now, imagine the same starting facts as in Example 1 with the change that Sam is gainfully employed in FY2020 while lacking the cash in FY2020 to fully utilise the 3-year bring-forward in one financial year.

Example 2

Sam contributes total NCCs to his super fund of $150,000 in FY2020 triggering a 3-year bring-forward of NCCs pursuant him satisfying the 40 hours in any 30 consecutive day gainful employment test.

In FY2021, Sam would like to finalise the bring-forward arrangement and contribute the remaining $150,000 in NCCs.

Sam can finalise his bring-forward arrangement provided his TSB is less than $300,000 on 30 June 2020.

Rejection

Under the WTE, a trustee of a regulated superannuation fund must reject a voluntary contribution that is made in respect of member aged 65 to 74 if any of the conditions outlined above for the exemption are not satisfied.

Though there may be reasonable certainty regarding the gainful employment test being satisfied in a prior financial year, super fund trustees will need to be careful to ensure the relevant requirements are satisfied especially in relation to TSB testing. If a trustee is mistaken about a member’s TSB on a prior 30 June being less than $300,000, the contribution would need to be returned to the contributor within 30 days of becoming aware of this issue pursuant to reg 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (Cth).

Conclusions

The WTE provides enhanced flexibility for those between 65 to 74 to contribute voluntary amounts to superannuation from 1 July 2019, subject to the usual contribution caps.

Though the gainful employment rule is an outdated and inflexible test in our modern retirement system given recent trends such as changing work patterns and the ‘gig economy’, the WTE is a welcome softening of the rules.

We would encourage the government to remove the gainful employment test altogether to simplify the superannuation system and create greater flexibility to make voluntary contributions.

William Fettes, Senior Associate and Daniel Butler, director, DBA Lawyers