Financial advisers need to be clear on what is considered ‘gainful employment’ under the work test exemptions when dealing with clients as any efforts to bypass the definition would be a breach of ethics, according to an SMSF advice specialist.
BT head of financial literacy and advocacy Bryan Ashenden said the issue of what is considered gainful employment has been questioned since the work test exemption took effect on 1 July 2019, but financial advisers and their clients need to treat the issue seriously.
Addressing attendees at the recent SMSF Association 2020 National Conference, Ashenden said the definition of being gainfully employed had been set by the ATO in the work test exemption regulations, “but there are always times when people raise the question that if they enter into this-or-that type of arrangement, would it qualify as gainful employment”.
He highlighted that looking after grandchildren, even if paid, or managing an investment portfolio after age 65 did not qualify as gainful employment and a simple question to consider was: “Would your client do it anyway?”
Standard one of the Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics is the measure advisers should use in considering what gainful employment is for a client aged over 65, he noted.
“FASEA code standard one says you must act in accordance with all applicable laws, which includes superannuation law, and try to not to circumvent their intent,” he told the conference held on the Gold Coast.
“So we can come to the question of what happens to a client aged 65 who does pamphlet delivery in their local area and gets paid for it, but they do it slowly so it takes 40 hours, or a son who employs a parent in their business and pays them a nominal sum, which is only being done to qualify as gainful employment.
“The question for advisers is is it something that is real or something that is trying to get around the requirements of the law. As an adviser that is an issue you will have to contemplate in the future in the advice you give to clients.”
He highlighted the need for advisers to be clear on what the difference is between trying to manipulate the work test to get around the law and using it to meet the requirements of the law by using an example of drawing a pension payment from a transition-to-retirement income stream (TRIS).
“A TRIS only allows a member to take a maximum pension payment of 10 per cent of the balance in each year, but what if someone wants more? They could go to another provider, start another TRIS and redraw the 10 per cent, but that feels like getting round the intent of the law,” he said.
“The law says you can’t do this and if the regulators wanted you to take out more than 10 per cent, they would have allowed that, so moving providers and trying to do those sorts of things is circumventing the intent of the law.”
