Question 1: I am retired, aged 67. My husband is retiring age 60 in March 2022. In preparation for his retirement, we bought a retirement home in March 2021 using $700,000 from my personal super, leaving my balance at $72,000. Our new residence has a mortgage of $500,000, and the rent is covering the mortgage. My husband will retire with approximately $1.5 million in his super. We believe we will sell our home we are currently living in for over $800,000. 

The question is what to do with the money from the sale of our current home? I am 67 and not working, so can no longer contribute to super unless I meet the work test – I do not work. We can’t use the downsizing [contribution] from the sale of our existing home into my husband’s super, as we have only owned it for seven years and he does not meet the age requirement.

When my husband retires and we sell our home and move into our retirement home, I am eligible for the aged pension as my husband’s super balance does not count towards the pension assets test until he reaches retirement age, or converts his super from accumulation phase to retirement phase and draws an income. We don’t know if we can afford that option of him sticking to accumulation phase for as long as possible and we live on my aged pension using savings of approximately $100,000 in the bank and using the small amount in my retirement phase. Obviously, we need help.

Freeing up additional funds heading into retirement is generally a good idea.

Given your age and situation, placing additional funds into super would seem to be an appropriate strategy that provides the following advantages:

1. Funds can be converted into a regular income stream at any time
2. Superannuation is very tax-friendly, and payments received from age 60 onwards are all tax-free
3. As you mentioned, funds in the accumulation stage of super are not income- or asset-tested by Centrelink until you attain age pension age.

Given your husband’s age, he does not need to meet a work test to contribute funds to super.

His balance on the previous June 30 will determine how much he can contribute. For example, if his balance was between $1.48 million and $1.59 million, he could contribute $220,000 in after-tax non-concessional contributions, as outlined in the below table.

As for yourself, the government has proposed removing the work test for non-concessional and salary-sacrifice contributions, allowing anyone under 75 to contribute to super.

This is due to come into effect from July 1, 2022, however, at the time of writing, this change has yet to be legislated so we will have to wait and see.

In relation to you living off your super, your savings and your age pension to begin with, this sounds like a good plan.

If you have an income shortfall your husband can make ad-hoc, irregular withdrawals from his super (which is still in the accumulation phase) and these will not be assessed by Centrelink.

Alternatively, and this may be easier to manage, your husband can commence an income stream with only part of his super.

You will still receive the full age pension if you ensure your total combined assets are under the age pension asset limit for home owners (currently $405,000 as at January 2022).

When approaching retirement, it’s common to seek personalised financial advice and, given you have some key decisions to make and have multiple strategies available, I strongly suggest you see a licensed financial adviser.

Question 2: I’m almost 68 and retired 18 months ago when the pandemic began. I receive the aged pension but I still have a mortgage and not a lot of super, so I’m starting a small business (earnings are likely to be irregular or spasmodic as it’s sales based). Am I allowed to make contributions to my super from these earnings, and how will my small business income affect my pension?

Generally, if a person is aged between 67 and 75 they must meet a gainful employment test before voluntary contributions (contributions other than employer-mandated contributions) can be accepted by the super fund.

The gainful employment test requires a person to be gainfully employed for at least 40 hours in an unbroken period of 30 days in a financial year, and is commonly referred to as the ‘work test’.

Gainful employment for superannuation purposes is defined as being employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

If you are starting your own business, several indicators are assessed to determine whether you are gainfully employed.

Here is a list of the indicators from Tax Ruling 97/11:

• A significant commercial activity exists
• There is an intention to profit from the activity
• There is a purpose and intention in engaging in the activity
• The activity is or will be profitable
• There exists repetition and regularity of the activity
• The activity is carried on in a similar manner to that of the ordinary trade
• The activity is organised and carried on in a business-like manner
• Business records are kept
• There exists size and scale in the activity
• A business plan exists
• The product or services on offer are being commercially sold
• The taxpayer has knowledge or skill with respect to the activity
• The activity is not a hobby, recreation or sporting activity.

It’s also worth noting that for after-tax (non-concessional) contributions and salary-sacrifice contributions, the government has proposed removing the work test from July 1, 2022.

However, at the time of writing, this has not been legislated.

From a Centrelink perspective, self-employment and business income will count under the income test.

If you’re a sole trader, assets can include your personal assets used for the business as well as any business assets.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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