Ask the Expert: Who’s right when ATO, super funds give conflicting advice?

Deeming is a set of rules used to work out the income created from your financial assets.

Deeming is a set of rules used to work out the income created from your financial assets. Photo: Getty

Question 1. The ATO has told us we are eligible to contribute to our super fund after selling an investment property and having not worked for the last five years. We are 67 years at the time of contributing but the ATO states that because we were 66 during the 2021-2022 tax year we are eligible to contribute.

However, my super fund still keep to the notion that if you have stated you are 67 at the time of contribution you have to pass the work test. Surely the ATO knows what the rules should be and why are eligible members being penalised because of all super funds’ misinterpretation of the rules?

Firstly, let’s clarify the age rules of contributing to super, which have been relaxed this financial year, this may be the source of some confusion.

From 1 July 2022, if you are under age 75 at the time of contribution (technically, this also includes up to 28 days after the end of the month in which you reach age 75), then you make salary sacrifice and after-tax non-concessional contributions up to the relevant caps, including the use of the bring forward rule. No work test is required to be met, where previously this was required for those aged 67 or older.

However, if you want to make a personal tax-deductible contribution and you are over 66 at the time of the contribution then meeting the requirements of a work test is still required.

The work test is met if you have been gainfully employed for at least 40 hours in any period of 30 consecutive days during the income year in which the contribution was made.

Note that the work test does not necessarily have to be met before you make the contribution, but it does have to be met before the end of the financial year. Bear in mind though if you intend to meet the work test later on but it doesn’t eventuate then your tax deduction will be disallowed, and the contribution will then be classified as a non-concessional contribution (which could cause you to breach the non-concessional cap if you have already made these types of contributions previously).

As you are referencing the 2021-22 financial year which had different rules, then your super fund is correct, if you were 67 at time of contribution then you would have needed to pass a work test before they can accept the contribution.

Being 66 during the financial year allowed you to use the bring forward rule (i.e. allowing you to make a larger after-tax contribution) but this does not override the fact you first must have met the work test if you were 67 at time of contribution. The ATO may have been confused by this point, or they may have been referencing the 2022-23 rules instead of the 2021-22 rules.

Question 2. My wife and I are age pensioners in our 80s. We have some share holdings in ARB, CBA, COL, COH but no super. We have about $100K in cash and own our home. What will the effect be on our pensions if we sell some shares?

All shares are asset tested and ‘deemed’ to earn income under the income test.

Deeming is a set of rules used to work out the income created from your financial assets. It assumes these assets earn a set rate of income, no matter what they really earn.

If you place the proceeds from the sale of the shares into another financial product, such as bank account, term deposits or managed funds, then all these types of assets get treated exactly like shares, i.e. they are asset tested and deemed under the income test. Therefore, for age pension purposes you should see no change.

If you have made capital gains from your shares then this may impact your overall tax position, i.e. capital gains tax, but this again does not affect your age pension.

3. My wife and I have four grandchildren. We have bought shares for them with my wife as trustee, she claims the tax and franking credits. What happens when the boys turn 18 and the shares are sold and they receive the funds to buy new shares. Who pays the CGT?

It depends on how the structure operates at the moment. If it is an informal trust and you are claiming the franking credits on behalf of the children, then you can complete a change of ownership form when they turn 18 and no CGT may be payable if it is deemed there is no change in beneficial ownership.

However, if you have been keeping the franking credits yourself (or to offset your income tax) then it may be deemed a transfer of ownership and CGT may apply once the change of ownership form is lodged. If this is the case, then CGT would be liable on yourselves.

I suggest seeking personalised tax advice over your exact situation.

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