Superannuation – The definition of retirement

The definition of retirement for superannuation is important because it is one of the key events which allows people to access their super by entering pension phase.

The legal definition of retirement is found under reg 6.01 of the SISR, which provides that retirement can happen under either of the following two limbs:

Limb 1 — in the case of a person who has reached their preservation age* that is less than 60, they are taken to be retired if:

• an arrangement under which the person was gainfully employed has come to an end; and
• the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time* basis (i.e. for more than 10 hours per week)

Limb 2 — in the case of a person who has reached the age of 60, they are taken to be retired if an arrangement under which the person was gainfully employed has come to an end, and either:

• the person attained 60 on or before the ending of the employment; or
• the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time** basis (i.e. for more than 10 hours per week).

As you can see above, the definition of retirement is different for people who have reached preservation age but are less than 60 and for those who have attained the age of 60. The requirements under limb 1 require both criteria to be satisfied, whereas limb 2 only needs either of the listed criteria to be satisfied.

* Preservation age is the minimum age that a member must reach to access preserved superannuation benefits –  this is age 55 for those born before 1 July 1960 increasing to age 60 for those born after 1 July 1964.

** Part-time is defined to mean gainfully employed for at least 10 hours, and less than 30 hours, each week (reg 1.03(1) of the SISR).

Working for 2 or more employers

Those over 60 have greater ability to meet the definition since limb 2 only requires that ‘an arrangement under which the member was gainfully employed has come to an end’ and that the person attained 60 before the ending of the employment. This will mean that a person over 60 could cease one of two genuine employment arrangements (further discussed below under ‘gainful employment’) and meet the definition of retirement, even though their other job continues.

Members can meet the definition of retirement when they cease one employment arrangement even if the remaining job had the greater number of hours and a higher remuneration. For example, for a person who is over 60 with a full-time job and a side job as a genuine self-employed Uber driver can meet the retirement definition by genuinely ceasing only the Uber job.

What is ‘gainful employment’?

It is not possible to meet the retirement definition by simply ceasing any job, work or task. Under both limbs, members must actually cease gainful employment.

The question then becomes, what does it mean to be gainfully employed? The SIS regulations define ‘gainfully employed’ to mean “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.” This definition is broad enough to cover any activities undertaken by someone for which a payment is received however it is also narrower than many realise because the requirements of ‘employment or self-employment’ and ‘for gain or reward’ are always required.

To satisfy the definition, the test to determine whether or not there is employment is a multi-factor legal test based on things such as degree of control, who bears the risk of the venture, whether standard working hours exist, etc. Accordingly, not every job, work or task will be regarded as gainful employment. For example, a director of a small private company is unlikely to be gainfully employed by virtue of that role since a directorship is an office but not necessarily employment under any contract of service. On the other hand, a person who is genuinely driving for Uber as a paid form of self-employment, is likely to satisfy the retirement definition if they were to cease this role.

Please contact our Superannuation Manager Helen Cooper on 08 9316 7000 should you wish to discuss your specific circumstances in more detail.

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Single Touch Payroll

From 1 July 2018, if you are deemed to be a ‘substantial employer’ and have 20 or more employees as at 1 April 2018, you will need to use Single Touch Payroll-enabled software to report your tax and superannuation information to the Australian Taxation Office.

What will I need to report?

You will need to report the following on or before your payroll pay day:

• Employee payments such as salaries and wages
• Pay As You Go (PAYG) Withholding
• Superannuation information

How do I determine if I am required to report?

To determine whether you need to report through Single Touch Payroll, you will need to do a headcount of the number of employees as at 1 April 2018. If you have 20 or more employees on 1 April 2018, you must report under Single Touch Payroll from 1 July 2018.

If you have 19 employees or less on 1 April 2018, you will not be required to report under Single Touch Payroll until 1 July 2019.

What changes once I report under Single Touch Payroll?

• You may not need to provide payment summaries to your employees at the end of the financial year when you report through Single Touch Payroll
• Your employees will be able to see their year-to-date tax and superannuation information through MyGov
• In the future Single Touch Payroll information will be used to prefill your activity statements

What do I need to do?

If according to our records you are deemed to be a ‘substantial employer’, one of the Team from GeersSullivan will be in contact with you in the next week to discuss how we can assist you in the transition to Single Touch Payroll.

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