Tax planning opportunities for trustees and their accountants

There has been a raft of new changes and legislation for SMSFs in recent years but there are some small but important tweaks which trustees and their accountants need to be aware of for tax planning opportunities.

Work Test Declaration changes

For the 2004/05 to 2019/20 financial years, a member who is over 65 years-old but not 75 years-old must have worked at least 40 hours within 30 consecutive days in that financial year before their SMSF can accept certain contributions for its members. For the 2020/21 financial year onwards, this applies to members over 67 years-old but not 75-years old. This is known as the work test.

A piece of legislation has now aligned the work test requirement with the eligibility age for the age pension. This makes logical sense since the age pension is currently legislated to increase from the age of 66 to 67 from 1 July 2023.

There are three things that trustees and their accountants must keep in mind:

1. There have been no changes to the work test itself – this still requires gainful employment (usually paid work)
2. There have been no changes to the timing requirements – the work test must still be met before the contribution is made and in the same financial year as the contribution
3. We are yet to see Parliament pass the changes which would allow those turning 66 and 67 to trigger the non-concessional contribution ‘bring forward’ arrangements (potentially allowing a non-concessional contribution of up to $300,000 over a three-year period depending on the size of their super balance).

Work Test Exemption

From the 2019/20 financial year onwards, your SMSF can accept voluntary contributions for an additional 12-month period from the end of the financial year in which your member last met the work test. This is known as the work test exemption.

To be eligible for the exemption the member cannot have relied on the exemption in a previous financial year and they must meet the following criteria:

Carry-forward concessional contributions

You are able to carry forward your unused concessional contributions cap space amounts from 1 July 2018. The first year in which you can increase your concessional contributions cap by the amount of unused cap is 2019/20, but only if you have a total superannuation balance of less than $500,000 at the end of 30 June in the previous year. Unused amounts are available for a maximum of five years and will expire after this.

You can view and manage your concessional contributions and carry forward concessional contributions using the ATO’s online services through myGov. When working out your super contributions for the financial year, it is important to remember that contributions don't count when the payment is sent, they only count once the payment is received by your fund. Members need to make sure their fund receives all their contributions by 30 June to avoid unintentional contribution cap breaches.