When is a client eligible to make contributions?
The eligibility rules for making superannuation contributions can vary depending on an individual’s age and the contribution source.
From 1 July 2020, there are generally no restrictions on making contributions for individuals under age 67, aside from contribution caps and a requirement for the client to quote his or her tax file number to the fund. Once an individual turns 67, he or she will also need to consider the work test.
For contributions made prior to 1 July 2020, the work test generally applied if the individual was age 65 or more at the time of the contribution.
Age and work test
If it applies, the work test requires an individual to be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year. The work test must be met before a fund can accept a contribution.
Those aged 67 to 74 may be exempt from the work test for 12 months from the end of the financial year in which they last met the work test. The exemption applies if the individual:
- was gainfully employed for at least 40 hours in 30 consecutive days during the financial year ending before the contribution was made
- has a total superannuation balance of less than $300,000 at 30 June of the financial year ending before the contribution was made, and
- has not previously used this work test exemption
Maximum age restrictions may also apply depending on the type of contribution. The age limit is based on the individual’s age at the time the contribution is made and once the maximum age is reached, the fund is generally unable to accept the contribution.
The table below outlines the age and work test rules based on the source and type of contribution.
|Member (Personal)||Member (Downsizer)||Employer (Mandated)||Employer (Non-mandated)||Spouse/other|
|Age cut off||75||None - Member must be at least age 65 when the contribution is made.||None||75||75|
Note: Mandated employer, personal and spouse/other contributions may be accepted up to 28 days after the end of the month in which the member reaches age 75, provided the work test has been met in the financial year in which the contribution is made.
What are mandated employer contributions?
Mandated employer contributions include contributions that an employer makes to satisfy the requirements of a particular award, certified agreement or the Superannuation Guarantee provisions.
Tax file number (TFN) quotation
In order to accept a contribution other than an employer contribution, the member’s TFN must have been quoted to the fund. Whilst employer contributions can be accepted where a fund does not hold the member’s TFN, additional tax may apply to the contribution, known as ‘no-TFN contributions tax’.
What if a fund accepts a contribution when the member is not eligible?
A superannuation fund that receives a contribution in a manner that is inconsistent with the above requirements has 30 days from when the fund first became aware of the inconsistency to return the contribution. In the case of SMSFs, the ATO’s view is that the fund is generally taken to be aware that the amount is inconsistent with the requirements when it receives the contribution1.
However, for a contribution that is subject to the TFN quotation requirement, a fund is not required to return the amount if the member’s TFN is quoted to the fund within 30 days of receiving the contribution.
What if the 30 day period for returning the contribution has expired?
The ATO’s view is that an SMSF trustee is required to return the amount of a contribution that has been accepted in a manner that is inconsistent with the contributions standards, even if more than 30 days has elapsed since the trustee became aware of the inconsistency1.
Accepting late contributions
In cases where a member is not eligible to contribute because they don’t satisfy the age and work test requirements, a superannuation fund may accept a contribution for the member if the trustee is reasonably satisfied that the contribution relates to a period when the member was eligible to contribute. Importantly, where this discretion is exercised by the trustee of a super fund, it does not change the timing of the contribution for tax purposes (including contribution cap purposes).
Macquarie Contribution Cap Companion