I came across a little situation involving turning 65 that I wanted to highlight for others in case they found themselves in this situation.
Most people know that 65 years of age is an important milestone when it comes to superannuation. Most significantly, it’s the age at which an individual can withdraw from their superannuation without any cashing restriction (e.g. not limited to 10%, and no retirement from work required).
Want to contribute? You need to meet the Work Test
Prior to turning 65, you are able to contribute to your superannuation without having to meet any work test. After turning 65 (and before you turn 75) you can only contribute to your super if you have met the work test – this involves 40 hours of work in a 30 day period in the financial year in which you wish to contribute. This work cannot be voluntary.
Contribution Limits (2020 Financial Year)
Concessional (pre-tax) contribution limits are $25,000 for the financial year ended 30 June 2020, and non-concessional (post-tax) contribution limits are $100,000 per person per year.
Utilising the Bring Forward Provision
Although the annual limit for non-concessional contributions to superannuation is currently $100,000 as mentioned above, if you are 64 or younger at 1 July you can utilise the ‘bring-forward provisions’ during that financial year. This involves contributing three times the annual limit in one year and not contributing for the next two years, meaning you can contribute up to $300,000 in one year (being $100,000 x 3 years).
The wording in the law means that you can utilise the bring-forward provisions even if you’re 65 – as long as you were 64 at 1 July in the financial year you wish to contribute, you still qualify.
HOWEVER! – if you have turned 65 by the time the contribution is actually made, you will need to meet the work test in order for the contribution to qualify.
This little timing difference in the law becomes more apparent by using an example.
Example:
Nellie turned 65 on 20 January 2020. In February she sold a property and wished to deposit some of the proceeds, being $280,000 to her super fund.
Can Nellie still take advantage of the bring-forward provisions even though she has already turned 65?
Yes. According to the law, since she was 64 at 1 July 2019 she is still able to utilise the bring-forward provision as long as the contribution is made before 30 June 2020. This means that she can contribute the whole $280,000.
However, because she is already 65, she needs to meet the work test in order for the contribution to be valid and accepted by the fund.
What happens if Nellie hasn’t met the work test for the 2020 financial year?
The contribution, together with a reasonable calculation of the earnings made on that contribution, has to be returned to the member.
Can Nellie contribute it in the next financial year if she can’t/doesn’t meet the work test before 30 June 2020?
Yes, but only up to $100,000 since she will no longer be eligible to use the bring-forward provisions. Additionally the work test still needs to be met for each year a contribution is made. This means that in order to contribute all of the $280,000, Nellie will need to do it over a period of three financial years, meeting the work test each year.
If the work test had simply been met during the 2020 financial year, this wouldn’t be required.
What does this example tell us?
Be careful when taking advantage of the bring-forward provisions in the year you turn 65 – they could come back to bite you!
