Understanding super’s post-65 rulebook

PORTFOLIO POINT: You can contribute to super when you’re not working, or if you retire, or semi-retire early. Here are the rules if you’re considering this option.

Superannuation feels like it’s the thing you get or do when you’re employed, to derive an income for when you’re no longer working.

And to a large degree, that is the case.

But it’s not solely the case. It is still possible to have your super grow through contributions even when you’re not working. And, depending on your circumstances, it can make great deal of sense to do so. Sadly, not enough people put proper consideration into it.

Many people retire early. What’s early? Depends. But the loose definition of the retirement age is considered to be 65, because that’s when most people can get access to the government age pension.

And the age of 65 is also an important date for superannuation contributions. When you turn 65, your ability to contribute to super changes.

When you’re under 65, there are few extra restrictions on getting contributions into super.

It’s really important to understand the contribution issues you face during the working “twilight” years. For example, there are few restrictions on contributing to super before you turn 65 (although there are some). And once you turn 65, you can still contribute, though you need to jump a hurdle or two.

Turning 65 – the work test

If you’re under 65 and still working, then super contributions are straight forward for either concessional or non-concessional contributions.

For most, that means you can make concessional contributions of up to $25,000 a year and non-concessional contributions of up to $150,000 a year. (From 1 July, 2013, if you turn 60 during the current financial year, you are able to contribute up to $35,000.)

After turning 65, the rules change. In order to make contributions, you need to satisfy the “work test”. For most people who are legitimately continuing to work, that’s not a hard test to pass. The definition is that you must work 40 hours in a 30-day period. That’s not a calendar month, but any consecutive 30-day period within the financial year.

If you’re self-employed and are still working, then it should be relatively easy to satisfy the work test also.

It is highly possible that those who are predominantly retired, but still working as a director of a company, can make contributions to super, so long as they satisfy that work test.

How do you make the contributions?

In most cases, as normal. But there are some very important differences.

If you’ve wound back to part-time work, then you need to make sure you still meet the work test. So long as you’re doing 40 hours in 30 days, then you need to take into account the 9% superannuation guarantee that you’ll receive from your employer. But you can also make salary sacrifice contributions (up to your CC limit), if your employer allows that. (Note: employers don’t have to offer salary sacrifice. For more information, see this column 29/8/12.)

If you’re self-employed, then you also continue to make tax-deductible contributions to super through your business.

If you’re neither solely an employee (see the 10% rule next) nor self-employed, but supporting yourself financially, then you might also be able to make concessional contributions of up to $35,000 if you’re over 60 and meet the other requirements.

The point is whether or not it makes sense from a tax perspective.

If you’re under 65 and effectively retired and supporting yourself via your investments, then you can make deductible (concessional) contributions.

But there’s a few things to consider here. First, do you earn enough to make the tax deduction worthwhile? Remember, you don’t pay tax on your first $18,200 and you still might not pay any tax on up to about $20,542 in this financial year.

Second, those who earn less than $37,000 a year, may receive the low-income superannuation contribution (LISC) of up to $500 back, which is essentially a refund of the 15% contributions tax on an income of up to $37,000.

If you’re under the various limits where it doesn’t make sense to claim a tax deduction and therefore be taxed 15% contributions tax on the way into the fund, then it might still make sense to make contributions, but make them as non-concessional contributions. NCCs are not taxed on the way in, but they are also not a tax deduction for you or your business.

Employee versus self-employed (the 10% rule)

If you’re a bit of both (employee and self-employed), there’s a fine line to tread. And it’s known as the 10% rule. And it’s an important point to note for making concessional contributions.

If you derive 10% or more of your income through the year from being an employee, then you can’t make personal tax deductible contributions through your business, or in your personal name.

If it’s less than 10% – which is rare, but possible – then you can have SG paid for by your employer and you can still also make deductible contributions through your own business.

It’s a hard and fast rule. Don’t think you can be a little bit over the 10% rule and get away with it.

This most impacts a few types of workers. The first is those that finish work part-way through a year to become self-employed. For that financial year, they are really in trouble from the point of view of making concessional contributions. Unless they earn enough in their self-employment to reduce their income as an employee to below 10%, they are unable to make CCs. And unless they salary sacrificed enough on top of their SG contributions as an employee, they are likely to lose much of a year’s concessional limits.

The second is those who do a bit of both. For example, if you work as an employee one day a week and are self-employed for the other four days, then you are likely to also earn more than 10% as an employee, making you ineligible to make tax-deductible contributions through your own business.

I’m a bitzer. What do I do?

If you’re part employee, part self-employed, it’s not a disaster. But you’ll need to make most of your concessional contributions through your employee status.

For example, if you’re earning $50,000 as an employee and $50,000 self employed, you’re obviously going to fail the 10% test.

That can be okay. So long as your employer will allow you to make salary sacrifice contributions, then you will still be able to make your CC limit of $25,000 (under 60s) or $35,000 (over 60s).

At $50,000, your employer will be making a contribution for you this year of $4625 (9.25%). You could then ask that employer to make salary sacrifice contributions to go up to your CC limit for the year.

You haven’t made contributions for yourself being self-employed, but you’ve still contributed the maximum you could with the appropriate tax deductions.


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au