Defining the gainful work test for super

According to the Superannuation (Industry) Supervision (SIS) regulation, an individual is regarded as ‘gainfully employed’ where he or she is “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment”.

However, the meaning behind the ‘gainfully employed’ definition is often the subject of hot debate. You will note the definition is broken up into two elements:

1. requirement to be employed or self-employed; and

2. receipt of gain or reward in return for personal exertion.

1. Employed or self-employed

In the absence of a statutory reference, we must turn to some time-honoured common law principles to determine the meaning of employed and self-employed.

Employed persons: The relationship between an employer and an employee is a contractual one. Compliance with Pay As You Go (PAYG) and Superannuation Guarantee (SG) laws may assist in determining the extent of an employer/employee relationship, however these factors alone are not conclusive. The indicators in table 1 have been sourced from numerous court cases and serve as a guide only.

Self-employed persons: A person who is self-employed must generally be carrying on their own business. Importantly, each case will be judged on its own particulars. The indicators in table 2 have been sourced from numerous court cases and serve as a guide only.

2. Gain or reward

The Australian Prudential Regulation Authority (APRA) states the concept of gain or reward “envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion”.

Note, in some instances the gain or reward need not be lucrative. This is best highlighted in the first of several common scenarios.

Volunteer work: The provision of a payment in a non-monetary form, such as food, could satisfy the gain or reward requirement, but this would hinge on the existence of an employment relationship between the person and the payment provider.

Overseas employment: The act of being employed or self-employed for a gain or reward is not restricted to work performed in Australia.

Expense reimbursements: An expense reimbursement will not constitute a gain or reward.

Managing an investment portfolio: It is highly unlikely an individual managing their own investment portfolio will qualify as ‘gainfully employed’. There may be limited circumstances where an investor’s active approach in managing their portfolio will constitute the carrying on of a business.

Commonwealth Carer Payment: Receiving a Carer Payment from Centrelink does not in itself satisfy the gainful work test because the carer is not engaged in an employment arrangement with the Commonwealth of Australia (that is, the payer).

Payments in kind: It is possible a payment received in-kind may satisfy the gainful work test where there is a clear association between the receipt of the payment (for example, rent-free accommodation) and the services performed under an employment arrangement.

Recipients of Worker’s Compensation and income protection payments: Recipients of such payments are unlikely to satisfy the ‘gainful employment’ definition if they are not deriving a gain or reward in recognition of personal exertion. But those receiving payments while performing light work duties should satisfy the definition if a gain or reward is received for the work undertaken.

Company director and/or trustee of a trust estate: A director of a company or trustee of a trust is likely to satisfy the ‘gainfully employed’ criterion where there is an employment arrangement in place. The work test also requires an identifiable connection between the services rendered by the director or trustee, and the gain or reward received.

Rudy Haddad is technical manager for ING Australia .