Question of the month

Personal deductible contributions and work test

Article published on: 24-11-2023

My client retired a few years ago and will turn age 67 later in the current financial year. They have incurred a substantial capital gain and want to make a personal deductible contribution to super. Do they have to make the super contribution before their 67th birthday?

ANSWER

Yes, as your client is currently retired, the contribution must be made before their 67th birthday.

Background

If a client is age 66 or less when making the contribution, there is no work test requirement to claim the amount as a tax deduction. In contrast, if the client is age 67 or older when making the contribution, the work test (or work test exemption) must be satisfied to claim the tax deduction.

The work test requires that the client has been gainfully employed for at least 40 hours within 30 consecutive days at some point during the financial year.

The work test exemption applies if your client can satisfy all of the following:

the work test was met last financial year
their total super balance is below $300,000 at 30 June prior, and
they have not used the work test exemption in a previous financial year.

Once a client turns age 75, the contribution must be made by the 28th day of the month following the month of their birth. For example, if a client turns age 75 in April, the contribution must be made by 28 May.

Notice of intent timeframes

Many of the problems with personal deductible contributions we identify at Technical Services are because of the ‘notice of intent’. The notice is often submitted too late, submitted after a rollover or pension commencement, or simply not submitted at all. A valid notice of intent must be submitted within the strict timeframes to obtain the tax deduction.

In most cases, the notice must be provided to the super fund by the earlier of the following:

date the tax return is lodged for the financial year the contribution was made
end of the financial year following the financial year in which the contribution was made
client commences a pension, or
client rolls over or withdraws (a partial deduction is available for partial roll/over withdrawal).

For further guidance, refer to our article Steps to claiming a deduction for super contributions.

This communication is prepared by Actuate Alliance Services Pty (ABN 40 083 233 925, AFSL 240959), a related entity of MLC Wealth Limited (ABN 97 071 514 264). This is for financial adviser use only – it is not to be distributed to clients. The communication has been prepared to provide financial advisers with technical resources, support and knowledge. The information in this document is current as at the date of publication and reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue, and may subject to change. In some cases, the information has been provided to us by third parties. Whilst care has been taken in preparing this document, no liability is accepted for any errors or omissions in this document, and loss or liability arising from any reliance on this document. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we therefore recommend your client consult with a registered tax agent.