Work test caution needed regarding leave

superannuation work test

Certain employment leave may be used as a component to satisfy the work test allowing people aged 65 or over to make superannuation contributions.

A technical manager has suggested official employment leave periods can be used to satisfy the work test regarding superannuation contributions for people aged 65 or over, but care needs to be taken if unpaid leave is involved.

During today’s Accurium TechHub webinar, Challenger technical services manager Rahul Singh said: “A common question we receive is: what if a client is on paid leave? So perhaps they’re on annual leave or long service leave, and they’re over age 65, could they use that paid leave to satisfy the gainful employment superannuation work test?

“I think the positioning there is that the leave entitlements are representing salary and in that scenario our opinion is that paid leave is sufficient to satisfy the gainful employment test as long as those leave payments represent an underlying 40 hours over a consecutive 30-day period.”

Singh said situations where individuals take protracted leave just before their retirement, during which they are not paid, are more complicated as to whether this time could be used to satisfy the work test, with differing opinions about the subject.

“There was an APRA (Australian Prudential Regulation Authority) ruling, SPG 270, [that covered] superannuation contribution standards, and an earlier version of that did actually put forward a position that paid and unpaid leave can constitute gainful employment as long as the person is on the books of the employer,” he said.

“A [subsequent] edition [of the ruling] actually removed that paragraph. So some people in the industry use the first draft of SPG 270 to base an understanding that unpaid leave can also constitute gainful employment, but I can see there are conflicting and contrary views on that topic.”

The safest position for practitioners to take regarding leave is to advise only paid leave can be used as a component to satisfy the definition of gainful employment with regard to the work test, he noted.

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