There are some major changes that will be made to government benefits available to retirees from next year. The second of these (we discussed the first one last week) will affect eligibility for the Commonwealth Seniors Health Card (CSHC).

To be eligible for the CSHC, you have to be of pension age, with an adjusted taxable income under $51,500 for singles, or $82,400 for couples. The definition of adjusted taxable income is pretty straightforward – it is your taxable income, plus any reportable fringe benefits or reportable super contributions, plus any net investment losses. Income from an account-based pension (ABP) is effectively excluded from this definition – it doesn’t impact your taxable income if you are over 60.

With the change that comes in from 1 January 15, the income test will be expanded to include “deemed” income on any non-grandfathered account-based pension.

The changes

Any account-based pension that commences after December will be deemed.

Those that commence before January next year will remain exempt from the CSHC income test. However, if you lose access to the CSHC after 2014 but subsequently are able to receive it again, then when you apply, your pre-2015 account-based pension will be subject to deeming.

The following table summarises the rule changes:

It’s pretty clear what happens here. At present, any account-based pension income you receive from pre-January 2015 pensions is exempt. That is, nothing is counted. After that date, they’re deemed.

For 2014/15, the deeming thresholds are $48,000 for a single and $79,600 for couples. Up to these thresholds, you’re deemed to earn 2% each year. Above these thresholds, your investments are assumed to earn 3.5% per annum.

Assume the $300,000 purchase price is assumed to earn 3.5% per annum. That is, $10,500. Depending on your income from other sources, this might see your income higher than the CSHC thresholds mentioned above.

Need to do before 2015

By starting a pension before the end of the year, you will be grandfathered, which means:

• You get the income test exemption, which will mean no pension income is counted, thereby potentially enabling you to access the CSHC; and
• You’re not exposed to potentially higher future deeming rates (which will go up when the interest rate cycle finally turns)

Some further CSHC opportunities

• You might be tempted to take some of your pension money and move it back to the accumulation phase of your super fund – this is called a partial commutation. Your objective might be to reduce the account-based pension income you’re paid. The downside for aged pension purposes is that once you reach age pension age, any money in the accumulation phase is deemed. However, this doesn’t apply to the CSHC income test. If necessary, you could take lump sum withdrawals from this accumulation money.
• Money you give away is subject to the gifting rules for the aged pension only. That is, gifting doesn’t apply to the CSHC.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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