Trustees need contribution date awareness

contribution date

Trustees need to be made aware different dates apply to when contributions can be made and birthdates are not always key markers for actions.

Trustees are not always required to meet a contribution deadline on the date of a birthday at which they become eligible, or ineligible, to act, but should be aware of the differing and conditions that currently apply, an SMSF expert has highlighted.

Heffron managing director Meg Heffron said there had been a number of changes to contributions in the past two financial years, including the start of downsizer contributions and catch-up concessional contributions from 1 July 2018, work test exemptions from 1 July 2019 and no work test being applied from age 67, which started from 1 July 2020.

Heffron noted the bring-forward period for the latter change was still set at 65, but was likely to be changed to 67 under legislation that was expected to pass parliament this month, but be backdated to 1 July 2020.

She said as a result of these changes, SMSF members now have three separate dates at which to consider contributions, but pointed out these were not always tied to a member’s birthday.

“We have always had the situation where mandated contributions, whether they are super guarantee or award, it does not matter how old you are. If the law, or award, requires you to have a super contribution, it can be paid,” she said at the recent SMSF Association Technical Day 2020.

“Downsizer contributions have not changed either and they kick in from 65. What has changed is that for any other contribution we don’t need a work test until 67, but from 67 onwards we need a work test, and once you get to 75 there is no other contributions available, only downsizer and mandated contributions.”

She said these ages and the birthdays that go with them are often spoken of as the defining date, but this was not the case across the board.

“For contributions at age 75 I previously drew a hard stop at 75, but it’s actually the 28th of the month after they turned 75,” she noted.

“So, for someone who turned 75 at any point in July, the deadline for when the rules change for them and they can only receive mandated and downsizer contribution is, in this case, the 28th of August.”

Downsizer contributions were tied to age 65 onwards, but she pointed out people below that age could still sell a home with the intention of making the contribution after age 65.

“We talk about the key date being age 65, but that is only for the contribution and someone could sell their home before they turn 65, they just can’t make the contribution until after their birthday. There is usually only a maximum of 90 days from settlement to make the contribution, so you would have to be close to 65 to make this work,” she said.

Addressing the work test, she pointed out it was not required until age 67 and in this case that was a definite date.

“The work test is tied to a birthday and someone who wants to make a contribution on their 67th birthday would have needed to meet the work test beforehand, but someone who is 66 years and 364 days does not need to meet work test,” she said.

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