Retirement, Superannuation

New contribution opportunities for recent retirees

On 2 October, Treasury released draft regulations to implement the 2018 federal budget announcement that the ability to make contributions would be extended for recent retirees. These are currently available for consultation (with the consultation period to end on 26 October) and, assuming no issues emerge, they would be expected to become law shortly thereafter and take effect, as planned, from 1 July 2019.

For SMSFs, there are two components to the proposed amendments:

1.       The major changes are additions to the Superannuation Industry (Supervision) (SIS) Regulations 1994 – new paragraphs have been added to the key regulation that deals with accepting contributions (regulation 7.01(4)), and

2.       Adjustments to the Income Tax Assessment Act 1997 (ITAA 1997) that ensure the ability to bring forward future years’ non-concessional contribution caps is not also extended by these new rules.

There has been no change to the way the work test itself is defined. It is still broadly defined as completing 40 hours of gainful employment over no more than 30 consecutive days at any time in the financial year before the contribution is made (regulation 7.01).  Rather, the rules allow certain individuals to make contributions for an extra year after they last meet that test.

This article explains the rules currently proposed.

Extended contribution opportunity

For how long does the extension potentially apply?

Other than downsizer contributions, individuals are still unable to make voluntary contributions after age 75 (technically, after the 28th of the month immediately after the month in which they turn 75).

These extended rules therefore only apply to the period between an individual’s 65th birthday (when the work test first applies) and this deadline.

What contributions are affected?

The rules allow extra time for:

  • any member and employer contributions between 65 and 70, but
  • only member contributions made by the member and employer contributions from 70 to the age 75 deadline above.

The main difference between the two age brackets is spouse contributions. These are currently permitted between ages 65 and 70 providing the receiving spouse meets the work test but not allowed after age 70 regardless. The proposed extension of time will therefore also apply to spouse contributions, but only if they are made before the recipient turns 70.

This means the extended time period would apply to:

  • contributions for which the individual claims a personal tax deduction (since these are member contributions made by the member even though they are concessional contributions for tax purposes),
  • catch-up concessional contributions (the extra contribution opportunity available to certain individuals who did not fully use the $25,000 a year concessional contributions limit in 2018/19 or a subsequent year and who meet the conditions to use any shortfall in a later year),
  • transfers from foreign funds, and
  • capital gains tax small business contributions.

What is the extension?

The proposed extension is to allow an individual one extra financial year in which contributions can be made after the year in which they last meet the work test, providing their total superannuation balance (TSB) is less than $300,000 at the relevant time.

More specifically, the process would be:

  • identify the last year in which the individual met the work test (let’s say an individual retired, having recently turned 67, in May 2020), and
  • confirm their TSB was under $300,000 at the end of that year (30 June 2020 in this case), if so
  • member and employer contributions would be allowed in 2020/21 even though they would be turning 68 that year and would not have worked at all during 2020/21.

The extension would apply for the first time in 2019/20. Note that this is the first year in which contributions would be possible under the new rules – those using it in that first year would need to meet the work test in 2018/19.

What is and is not allowed?

Those who cease work entirely well before age 65 will effectively receive no benefit from this proposed change. It is not a blanket extension for one year after the last year in which contributions were possible.

For example, Anne retired at 60. She was last able to contribute in 2019/20 before she turned 65 in December 2019. This proposed change would not affect Anne at all. Since she did not meet the work test in 2019/20, she could not contribute in 2020/21. The situation for Anne would be completely different if she met the work test in 2019/20 – regardless of whether this was before or after her 65th birthday. As long as she did so at some point in 2019/20, she would be eligible to make contributions in 2020/21.

Kim also turns 65 in December 2019. What if she met the work test in 2018/19 even though she didn’t need to in order to contribute since she was under 65 at the time? This would give her the opportunity to use the extension in 2019/20 (assuming all other conditions were met). For example, it would allow her to contribute in January 2020 (after her 65th birthday in December 2019), which is not possible under the current rules.

The extension is denied to those who have used it before.

For example, Barry meets the work test in 2020/21 (aged 66) but is no longer working in 2021/22.  His super fund could receive member and employer contributions on his behalf in both 2020/21 (when he met the work test) and 2021/22 (when he did not). If Barry subsequently returned to work and met the work test in 2022/23, his fund could again receive member and employer contributions in that year (because he met the work test). However, the extension proposed by these new rules would not be available to him in 2023/24 because contributions would have already been made for him under this exception. Note that if he hasn’t used the concession already (for example, no contributions were made for him in 2021/22 even though he could have used the extension then) he would be eligible in 2023/24. The key test is not whether he has been eligible before, but whether he has used it before.

The same would apply to Anne in our earlier example. Let’s imagine she retired at 60 and did not work at all until January 2021 (at which point she has already turned 66). She could meet the work test in 2020/21 by doing some part-time work for a few months. Under those circumstances, her fund could receive contributions in both 2020/21 (because she meets the work test) and 2021/22 (using the extension – for the first and only time).

When must the individual’s TSB be less than $300,000?

This is only tested immediately before the year in which the extension is used. In Anne’s case (above), her TSB would need to be less than $300,000 at 30 June 2021 if she uses the extension in 2021/22. It would be completely irrelevant if her TSB was well over $300,000 at 30 June 2020 or earlier.

How does the extension interact with the bring-forward rules?

Currently, the year in which an individual turns 65 is the last year in which they can initiate a bring-forward period. In other words, it is the last year when, providing they are otherwise eligible to do so, they may contribute over the non-concessional contributions cap and lock in the right to contribute up to two or three years’ worth of non-concessional contributions over a two or three-year period.

These proposed changes also include amendments to the tax provisions dealing with the non-concessional contributions cap (section 292-85 of the ITAA 1997). These ensure contributions that are only allowed because of the extension cannot be used to initiate a bring-forward period. They can, however, be used to complete an existing bring-forward contribution program.

For example, Amy turns 65 on 1 January 2020. Her TSB was $250,000 at 30 June 2019 and she has not previously made non-concessional contributions.

Even without this extension, she could undertake a range of different contribution programs such as:

  • contribute $300,000 (a three-year bring-forward) any time between 1 July 2019 and 31 December 2019 (the last day before her 65th birthday) with no requirement to meet the work test at any time, or
  • contribute $300,000 between 1 January 2020 (her 65th birthday) and 30 June 2020 as long as she met the work test during 2019/20, or
  • contribute $150,000 (initiating, but not fully using, a three-year bring-forward) in September 2019 (before her birthday, no work test required). She could then make further contributions in 2020/21 and 2021/22 to use up the full $300,000 as long as she met the work test in each of those subsequent years. (Note that to make contributions in 2020/21 and 2021/22 she would also need to ensure her TSB was less than $1.6 million at 30 June 2020 and 30 June 2021. It’s likely this would be the case given her low balance at 30 June 2019.)

The extension would give her some extra opportunities. For example, she could contribute $180,000 (initiating but not fully using a three-year bring-forward) on or before 31 December and contribute the remaining $120,000 in March 2020 as long as she met the work test in 2018/19. This would constitute her single opportunity to use the extension – she would be using it to make the March 2020 contributions without meeting the work test in 2020/21.

But it would not allow her to:

  • contribute $300,000 after her birthday in January 2020 (initiating but not fully using a three-year bring-forward) without meeting the work test in 2019/20. While the extension would allow her to make contributions at this time (providing she met the work test in 2018/19), she is not allowed to use the extension to trigger her bring-forward and would therefore be limited to $100,000, or
  • contribute $50,000 in September 2019 (before her birthday) and $80,000 in March 2020 (after her birthday) if the last year in which she met the work test was 2018/19. While these two amounts together would normally allow her to trigger her three-year bring-forward in 2019/20, the event that does this is the second contribution (which takes her over the normal $100,000 cap). She is not allowed to use the extension to trigger her bring-forward.  Since she would be using the extension to make her March 2020 contributions (it is after her birthday and she did not meet the work test in 2019/20), she would be limited to $50,000 (the rest of her normal $100,000 cap).

Some quirks to resolve

This measure will present considerable challenges for large funds that don’t know their members’ TSB (remember this includes monies in all super funds, not just the fund to which the contribution is being made). These days, there are several measures that require knowledge of an individual’s TSB – for example, it determines:

  • whether or not their non-concessional contribution cap is $0 (where the TSB is $1.6 million or more),
  • how the bring-forward rules apply for non-concessional contributions, and
  • from 1 July 2019, whether or not catch-up concessional contributions can be made.

But in each of these cases, getting it wrong is largely the member’s problem – they will have a contribution in their name that exceeds the relevant cap and will suffer the consequences accordingly.

This new measure is the first time not knowing the TSB might allow a compliance breach, presenting an issue for the fund as well as the individual.

It will also be interesting to see how large funds (and even the ATO) handle situations where individuals make contributions early in the financial year expecting to be relying on this extension, only to find they end up meeting the work test for that year. In theory the contribution can only be accepted by the fund under this extension (because it is made before the work test has been met). But that would mean the individual had used their one chance to receive an extension and would not be eligible in future years.

It will also create an interesting new record-keeping challenge for people who wish to use this extension to contribute:

  • in the year they turn 65, but
  • after their birthday

without meeting the work test.

For example, using the extension to contribute in March 2020 after turning 65 in January when the work test was last met in 2018/19.

Previously there would have been no need to keep records indicating the work test was met in 2018/19 as it was irrelevant at that time. This will now be necessary to support the use of the extension.


The feature that will limit the value of this opportunity is the $300,000 cap on members’ TSB.  However, it does present some new opportunities for those with small balances.

Meg Heffron is director at Heffron SMSF Solutions.

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