It is vital for advisers and accountants to be cognisant of the interplay between the bring-forward rules, work test exemption and downsizer contributions, an SMSF expert has said.
Smarter SMSF chief executive Aaron Dunn said during a webinar last week on the latest technical and regulatory issues affecting SMSFs that changes to the work test exemption for recent retirees contain details that can be complex, making it vital for advisers and accountants to be across the changes not only into the new calendar year, but as the laws come into effect from 1 July 2019.
The Treasury Laws Amendment (Measures for a Later Sitting) Bill 2018: Work Test Exemption for Recent Retirees states the proposed regulation changes make amendments to the eligibility criteria for accessing the bring-forward arrangements for non-concessional contributions in the Income Tax Assessment Act 1997 to complement proposed regulation changes to super contribution acceptance rules.
The proposed changes provide for a one-year exemption from the work test applying to superannuation contributions that will allow recent retirees to boost their retirement savings.
Following the changes, individuals aged 65 to 74 with total super balances (TSB) below $300,000 can also make voluntary contributions to their super for 12 months from the end of the financial year in which they last met the work test.
Dunn said he is disappointed the regulation only permits a $300,000 threshold, but allowed for the possibility of this changing over time.
“Maybe it would’ve been even better if it was linked to the $500,000 threshold because we already have another piece of legislation with our catch-up contributions of $500,000,” he said.
“We’ve got another threshold that we need to deal with when we think about total superannuation balance and what it influences, right down to $300,000 of course, taking us from $500,000 to $1 million to $1.4 million to $1.5 million to $1.6 million; some indexed and some not indexed.
“That in itself is very confusing and therefore why it is absolutely fundamental that you’re across all those particular things.”
He suggested the threshold may be an appropriate strategy where advisers may seek to make further contributions through downsizer contributions for clients who are over 65 and have a small balance.
“We may be able to tip in not only the $300,000, but we may be also be able to get in an amount under the work test exemption rules, whether it’s $300,000 if they were turning 65,” he noted.
“They can get that money in or simply $100,000 because that individual is 68 or 69 or 70 years of age and satisfied the work test in that previous year.”
