Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 124

Meeting the work test for contributions

I’ve had a paradigm shift! Just when I thought I could confidently predict the ATO’s view on meeting the work test to make contributions, they have come back and surprised me!

Let me explain. I have been assisting a client where the ATO wants to charge her excess contributions tax. My client is over the age of 65 and at the time she made the contribution, she had not met the work test. My argument was that as she had not met the work test at the time she made the contribution, the trustee should not have accepted the contribution. However, the ATO has taken the view that as she has an SMSF and is self-employed, she would have known that she would satisfy the work test at a later date in the financial year. I did not see that coming!

The need to be ‘gainfully employed’

The timing of contributions has caused a great deal of confusion for SMSF trustees, members and industry professionals. The superannuation law states that once an SMSF member is aged 65 or over but is less than 75, they can only make superannuation contributions into their SMSF if they are gainfully employed on at least a part time basis during the financial year in which the contributions are made.

The definition of ‘gainfully employed’ under the superannuation law means to be employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. The concept of gain or reward envisages receipt of remuneration such as a salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion. It does not include the passive receipt of income such as rent, trust distributions or dividends. Therefore, if a member only receives passive income, they would not meet the gainful employment test. Unpaid work also does not meet the definition of gainful employment.

The term ‘part-time’ means to be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in a financial year. So if you work 10 hours per week in one month or 10 hours over four days, that would be sufficient.

The ‘paid work’ condition only has to be met once in each financial year you make the contribution, after turning 65. Once you have met it, you do not need to be gainfully employed for the rest of the financial year or need to meet the work test again each time you make a contribution into your SMSF.

Timing difference between public fund and SMSF

Based on the ATO’s interpretation in my client’s case on the work test, it seems to depend on whether you are making contributions into an SMSF or a public superannuation fund and whether you are self employed.

If you are making contributions into an APRA regulated superannuation fund, then you must meet the work test prior to making your first contribution after turning 65. This is because the trustee of the fund will need to be satisfied that you have met the work test in order to allow you to contribute into the fund.

If you plan on making contributions into your SMSF, then it seems that as long as you have met the work test once in the financial year after you turned 65, you can contribute. This is especially important for members who are self employed. If you know that you will be in part-time paid employment at some time during the year, after turning 65, you can make contributions into your SMSF even though you may not have worked part-time at the time you make the contribution. Of course, if you assumed that you will work that year (after turning 65) and then fell ill and therefore were unable to work at all, then the contribution would need to be returned to the member within 30 days of the SMSF trustee becoming aware of the member’s illness.

The ATO’s decision in my client’s case seems to have wider applications. It seems to me that if you have an SMSF, as long as you meet the work test in the financial year that you make a contribution, it is not a contravention; regardless of whether the contribution was made before or after you satisfied the test.

 

Monica Rule is an SMSF specialist and author. Her website is www.monicarule.com.au. This article is for educational purposes and does not consider the needs of any individual.

 

RELATED ARTICLES

Tax paid by your SMSF can be returned to your dependants

Are you paying tax by not starting a super pension?

A guide to excess non-concessional super contributions

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.