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Commonwealth Seniors Health Card SMSF Account Based Pension’s Post January 1st 2015

The Commonwealth Seniors Health Card (CSHC) delivers to card holders many great benefits and is rightly treasured by many retirees. It delivers savings on pharmaceuticals, transport, medical bills amongst other benefits depending on what State you live in.

So with this in mind, why would you put your eligibility for the CSHC at risk?

Sadly, many will. Following changes to the income test that were announced in the 2014 Federal Budget and come into effect from January 1, 2015 a large number of retirees are at risk of being disqualified from the scheme by failing to address the changes.

To summarise the biggest changes, the income test for the CSHC will change so that new applicants will need to include deemed superannuation pension incomes from all sources including those from self managed superannuation funds (SMSF).

There was however a reprieve for existing CSCH holders.

Their Account Based Pension (ABP) superannuation pensions will be exempt whilst they remain largely unchanged.

Get it wrong and it is highly likely that the deemed income from an ABP will count against eligibility for the CHSC and proper consideration must be given before any change.

So what are some of the main January 2015 changes?

Firstly, the big one, grandfathering. As mentioned above current CSHC holders with ABP pensions started before January 2015 will not be included in the CSHC income threshold test. Count yourself lucky if you are in this group.

Secondly, CSHC holders (pre-Jan 2015) who change pension providers on or after 1 January 2015 will be subject to the new income test rules. Changes may include rolling an SMSF pension to another SMSF or one member in an SMSF passes away and the other rolls their ABP to a retail or industry fund.

For the future being careful making any changes to pre January 2015 ABP’s as it will likely stop/start it and its income deemed against CSHC.
CSHC Deemed income is an assumed rate of return set annually by the Department of Social Services.

Current deeming rates (1 July 2014) are 2% for the first:

  • $48,000 of a single income support recipient’s total financial asset;
  • $79,600 of pensioner couple’s total financial assets; and
  • 3.5% to balances above these amounts.

Good news is that CSHC income (assets are not considered) eligibility levels are now indexed and from 20 September 2014 newly adjusted taxable incomes below $51,500 for singles or $82,400 for a couple are eligible for CSHC.

Adjusted Taxable Income adds back net investment losses, employer-provided fringe benefits, reportable super contributions and some foreign untaxed incomes.

Let’s look at a case study:

Peter and Mary are both aged above 67 and have an ABP paid from their SMSF that commenced prior to January 1, 2015. They recently inherited a large lump sum and the wish to contribute this to top up their SMSF pensions.

They both work 40 hours over 30 day periods through summer at their local boathouse cafe passing the work test to enable non-concessional contributions of up to $180,000 each to their SMSF.

The inheritance is bringing them close to failing eligibility for the CSHC and if they stop/start their pension it would most certainly include the whole income to their assessment and knock them out of CSHC eligibility.

Instead Pete and Mary sought great advice leaving their existing ABP in place with its deemed income exempted and started a new ABP inside their SMSF with only the ABP deemed income counted against their eligibility. It is a great solution as SMSF members often have for estate planning and tax purposes multiple pensions and when making further contributions to the fund they will commence a second or third pension rather than stopping other SMSF pensions.

Many other changes like transition to retirement pension changing to an ABP or a non-reversionary pension is inherited will also need to be considered. In the meantime touch an ABP without considering CSHC impacts.