The scrapping of the work test for individuals aged 65 and 66 who want to make superannuation contributions is likely to be implemented using a method that targets certain groups of people, a technical expert has said.
“I think what we’ll see is the targeted removing of the work test for certain cohorts of individuals that arguably the work test currently discriminates against,” SuperConcepts technical services and education general manager Peter Burgess told delegates at the recent SMSF Association 2020 National Conference held on the Gold Coast.
“The ones that come to mind for me are the small employers who sell their businesses, they receive their proceeds after 65, but [currently] have to meet the work test, [or] someone who receives a structured settlement contribution after age 65 who has got to meet the work test.
“So it makes sense to me they’d look at removing the work test for those cohorts of individuals.”
Burgess said the measure to scrap the work test, which was announced in the 2019/20 federal budget but is yet to be passed into law, is likely to be carried out in this manner because of the unintended consequences from alternative implementation methods.
“The biggest barrier to the government doing [away with the work test] is the deductibility rules. Of course if you do away with the work test, individuals up to the age of 75 will be able to make voluntary contributions, claim a tax deduction and then take those contributions out at will,” he said.
“I’m not sure that’s a result that Treasury would be particularly keen on.”
With regard to another budget announcement not yet passed into law, that being allowing people aged 65 to 67 access to the bring-forward non-concessional contributions rule from 1 July 2020, he issued a word of warning to practitioners.
“The problem here is that this has not been passed into law. So whenever we’re talking about the bring-forward rules for non-concessional contributions, planning is all important, particularly for clients as they get close to age 65,” he noted.
“Normally what we do is we wait until the year they turn 65 and we trigger the bring-forward rule then to try and maximise the amount we’re getting in. The problem we’ve got now is we don’t know when that final year is because they’ve announced this change but it’s not law.”
He pointed out this creates an advice conundrum for clients turning 65 in the 2020 financial year who qualify to use the extension of the bring-forward non-concessional contributions rules.
“Do you play it safe and say look let’s trigger it this year [and make a $300,000 contribution] or do you assume the changes will be made and [recommend] a $100,000 non-concessional contribution this year and next and you trigger it in the year they turn 67?” he said.