Gainful employment - what does it mean?

If you’re planning on retiring to benefit from your superannuation, you need to establish whether you meet the requirements of ceasing gainful employment before you can access those funds.

Depending on your age of retirement, there are different rules and regulations. The two most important things to understand are what retirement means and what gainful employment means.

We’ll discuss these definitions and explore examples of real-life scenarios where things don’t always go according to plan.

What is the definition of retirement for superannuation purposes?

If you meet the definition of retirement, you have unrestricted access to your accumulated superannuation savings.

You may retire when you have reached preservation age (between the age of 55 and 60) and

• you are no longer gainfully employed, AND
• the trustee is reasonably satisfied that you don’t intend to be gainfully employed again on a part-time or full-time basis.

If you are aged 60 or above, you can retire if your gainful employment has ceased, and

• you reached the age of 60 on or before the ending of your employment, OR
• the trustee is reasonably satisfied that you don’t intend to be gainfully employed again on a part-time or full-time basis.

A notable difference for those over 60 is if you have more than one gainful employment arrangement, you only need to cease one to be considered retired. Ceasing one form of gainful employment grants you access to your super benefits, making you eligible to withdraw them.

What is gainful employment?

Gainful employment in terms of superannuation is defined as being employed or self-employed in any business, trade, profession, vocation, calling or occupation and performing personal exertion in return for any gain or reward.

Gain or reward can be:

• salary
• wages
• business income
• bonuses
• commissions
• gratuities (e.g. a tip or a sum of money paid by an employer above the regular salary or wage).

Voluntary charity work is unlikely to satisfy the definition of gainful employment. Any remunerations are typically expense reimbursements rather than payment for skills and services provided.

Work conducted for at least 10 hours a week is classified as gainful employment:

• 10-30 hours of work a week is part-time employment, and
• 30 or more hours per week is full-time employment.

What if someone was planning on being gainfully employed in the future after retiring?

If you have reached preservation age and want to retire, you have to prove that you are never intending to be gainfully employed for more than ten hours per week in future.

So, if you take on any work in future, you will still be able to receive your super so long as this work remains less than 10 hours per week.

If you are 60 or older, you meet the retirement criteria as soon as you terminate a contract of gainful employment. Whether you will be gainfully employed in the future or not is irrelevant.

Hypothetical example 1a:

When Nick retired at the age of 60, he had worked a very labour intensive job his whole life and had no intention of lifting a finger again after retiring. But, in less than six months, he grew bored and decided he wasn’t ready to sit and do nothing all day just yet.

He went back to work part-time, and the amount of money he receives from his super every month remains unchanged. The subsequent super contributions he makes from the new commencement of employment will be separate, and he’ll have to meet another condition of release in order to access those benefits.

Hypothetical example 1b:

Nick’s trade’s partner, Brian, decided to retire at the age of 58. Like Nick, he also quickly realised he wasn’t ready to hang up his boots quite yet.

By definition, because Brian retired when under 60, he is not allowed to partake in gainful employment again.

But, in this case, the original declaration of retirement was genuine. Brian was able to prove that he didn’t deliberately retire to access his super and then become gainfully employed once more. Therefore, it is considered permissible to have a change of intention.

Hypothetical example 2:

Sue is a 57-year-old freelance artist and takes whatever commission work she’s offered. Depending on the artwork, she only works four hours some weeks, and other weeks, she does 15.

In this case, the average hours per week isn’t the main focus, but instead whether she intends to work more than ten hours per week. Because Sue is willing and intending to work whenever work arises, including ten hours or more per week, she probably won’t meet the definition of retirement and won’t be eligible to receive her super.

Hypothetical example 3:

Shane heard you could receive your super if you’re over 60 and only gainfully employed part-time. So, he arranged with his employer to cut his hours down to 20 hours per week.

By definition, a person can retire if they are over 60 and have terminated their gainful employment contract. So, Shane would have to resign from the company and retire in order to receive his super. After that, he could become employed again part- or full-time as desired.

Once Shane returns to work, the amount of money he receives from his super every month will remain unchanged. The subsequent super contributions he makes from the new commencement of employment will be separate, and he’ll have to meet another condition of release in order to access those benefits.

Key takeaways

Before retiring, it’s worth considering if there’s a chance that you will want to go back to work part- or full-time in the future.

If there is a possibility, it could be wise to wait until you’ve reached the age of 60 so that you have that option available to you.

You may be able to go back to work and still receive your super if you retire before 60, but it’s not an easy process, and you’ll have to prove that your original declaration of retirement was genuine.

Therefore, it’s important to know what it means to be gainfully employed and what your short and long term employment plans are.

About Krishan Sharma

Krishan is the founder and director of KNS Accountants. He has over a decade of experience across the world of accounting, specialising in SMEs, capital gains tax and self-managed superannuation funds. Krishan is a member of the Institute of Public Accountants, a registered Tax Agent with the Tax Practitioners Board and an ASIC-registered SMSF Auditor. He holds a Bachelor of Commerce degree from Macquarie University, Public Practice Certificate and is a certified Xero and Quickbooks advisor.

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